2015/2016 Annual Report

™ 2015/16Your Life.ANNUAL Connected. REPORT Yours to Share

Colleen Cameron Account Executive – Aboriginal Market Letter of Transmittal

Regina, Saskatchewan June 30, 2016

Her Honour The Honourable Vaughn Solomon Schofield, S.O.M., S.V.M., Lieutenant Governor of Saskatchewan

Dear Lieutenant Governor: I have the honour to submit herewith the annual report of SaskTel for the 15-month period ending March 31, 2016, including the financial statements, duly certified by auditors for the Corporation, and in the form approved by the Treasury Board, all in accordance with The Saskatchewan Telecommunications Holding Corporation Act.

Respectfully submitted,

Honourable Jim Reiter Minister Responsible for Saskatchewan Telecommunications Minister’s Message

On behalf of Premier Brad Wall and the Government of Saskatchewan, I am pleased to present the 2015/16 SaskTel Annual Report. The report covers a 15-month period from January 1, 2015, to March 31, 2016, following a decision to align the fiscal period for all Crown Corporations with the Government of Saskatchewan’s fiscal year.

For more than a century, SaskTel has been integral to the growth and development of the province. Today, Saskatchewan people are connected like never before with the ability to use technology to keep in touch with family and friends, as well as conduct business. Saskatchewan businesses that create jobs are also better able to connect with and serve their customers, and even Governments have access to more advanced solutions to provide essential services to residents.

All across the province, SaskTel continues to deliver on its commitment to deploy next-generation technologies. Since 2007, the corporation has invested more than $2.4 billion in capital expansion and upgrades. This is helping to better deal with the increase in competition, customer expectations and industry regulations. I am proud of SaskTel’s success in adapting to these changes by evolving into a leading Information and Communications Technology (ICT) provider.

As SaskTel evolves to meet demand, it is connecting rural, remote and First Nations communities. These communities are eager for partnerships to advance their social and economic policies. For example, an important partnership between the Canoe Lake Cree First Nation (CLCFN), Primrose Lake Economic Development Corporation and the Meadow Lake Health and Social Development Authority (MLHSDA) resulted in 4G being deployed in Jans Bay and Canoe Narrows for the first time.

Looking ahead, SaskTel will continue to deliver on the Government’s plan for growth, which includes investments in infrastructure. These include investments in bandwidth and cellular infrastructure, broadband upgrades and fibre to the home in large centres.

The success of our Crown Corporations requires the support of residents, businesses and most importantly, employees. On behalf of the Premier and the Government, I want to thank the board, management and employees at SaskTel for their hard work and commitment.

Honourable Jim Reiter Minister Responsible for Saskatchewan Telecommunications

SASKTEL 2015/16 ANNUAL REPORT | 1 Contents

Letter of Transmittal 1 Minister’s Message 3 Financial Highlights 5 President’s Message 8 Sharing Our Stories 8 Seeing Through the Cloud 10 Meeting the Need for Speed 12 Rolling Up Our Sleeves 14 Putting Out Fires 16 Bringing Technology to Rider Nation

18 CSR Highlights 23 Management’s Discussion and Analysis 75 Consolidated Financial Statements 75 Management’s Responsibility for Financial Statements 76 Report of Management on Internal Control over Financial Reporting 77 Independent Auditors’ Report 78 Consolidated Financial Statements 81 Notes to Consolidated Financial Statements

111 Board of Directors 115 SaskTel Executive 118 Corporate Directory 119 Corporate Governance Statement IBC Contact Us

2 | CONTENTS Financial Highlights

FINANCIALS CUSTOMER NETWORK

Net Income ($ Millions) 2015/16 Internet Accesses 2015/16 Capital Expenditures

150 Dial Up 3.2% DSL 81.5% Product Development 2.2% Other 4.0%

$29.0 $126.7 Buildings & Fibre 13.7% Equipment 8.1% Wireline – Fibre 29.0%

$4.6 $13.9 $3.4 $0.9 Fusion 1.6% $26.7 $1.4 $104.2 100 266,237 IT Infrastructure $76.4 Accesses 11.9%

$378.0M Wireline – 50 Wireless Copper 8.6% 20.9% 2014

Costs Wireline – 2015/16 Services

Revenue Fibre network enhancements are contributing Other 15.3% Goods and Net Salaries Q5 2015/16 Net Finance Net Finance to a resurgence in Internet access growth. Other Income Dep’n & Amort 2016/17 Budget In 2015/16, fibre access via SaskTel’s infiNET Net income increased due to a 2.2% growth in product grew 78.9% and contributed to overall SaskTel invests significant dollars to deliver revenue, a 0.6% decline in operating expenses, Internet access growth of 2.6%. an advanced ICT core to our customers. and an additional three operating months as N During 2015/16, SaskTel invested in fibre-based a result of a change in SaskTel’s year end from technologies ($69.9 million), advanced wireless December 31 to March 31. technologies like LTE and LTE-TDD, and 50 100 150 spectrum ($76.8 million), and other network improvements ($85.1 million).

Data Usage & Network Revenues ($ Millions) Technology Accesses Fibre to the Premises (Homes) TERABYTE OF DATA SERVED PER MONTH BY THE WIRELESS NETWORK Other 2.0% Local & Enhanced 18.4% 2,500 700,000 160,000

600,000 140,000 Advertising, Security 2,000 and Software 5.6% 500,000 120,000 1,500 400,000 100,000

300,000 Equipment 5.2% 1,000 80,000 TERABYTE 49.9% 200,000 Long 60,000 500 maxTV, Distance 3.7% 100,000 39.9% 40,000 Internet, Data 25.8% 0 0 27.4% 20,000 $1,574.4M Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Wireless 13.6% 39.3% ACCESSES ■ CDMA ■ 4G ■ LTE 0 2012 2013 2014 2015/16

■ Passed ■ Connected

Revenue from wireless, maxTV, Internet and data Wireless revenues continue to grow in direct Fibre is a key component in providing the high continue to represent 65.1% of revenues. SaskTel’s correlation to SaskTel’s investment to increase bandwidth (up to 260 Mbps) that customers are network investments in LTE and fibre allow capacity and speeds on its wireless network. demanding. To date, the fibre build focused on customers to adopt new plans with increased Customers are subscribing to larger tier data communities of Regina, Saskatoon, Moose Jaw, data speeds and advanced features. Local access, plans in order to satisfy their data consumption Prince160000 Albert & Swift Current. SaskTel expects 160000 enhanced features and long distance revenues needs. The trend is expected to continue as to spend $51.0 million in 2016/17 to continue 140000 continue to decline. This is primarily attributed to customers continue with wireless substitution rollout128000 of fibre to these communities, as well as wireless substitution and limited organic growth and as a new “cord nevers” enter the market. Weyburn & Estevan. 120000 as a result of “cord nevers.” 96000 100000 80000

SASKTEL 2015/16 ANNUAL REPORT | 3 Sharing our Stories President’s Message

SaskTel is in the business of making it easy for people to connect to one another and to the world that exists across town or across the planet. How that happens is our job as an ICT company, and I think we do that job pretty well, but there is another question that drives nearer the heart of SaskTel’s reason to be, and that is to get beyond the how and ask why?

Why do we work so hard to connect our customers increasing speeds. We are now well positioned to and why do our customers want to connect? The provide the bandwidth we need to accommodate answer has a lot to do with a very human impulse to customer growth in these two centres. reach out and share something—an idea, a laugh, a Speed is something we work very hard to achieve in product. Share buttons on social media are merely the our LTE offering. When U.K.-based OpenSignal group most overt examples of the phenomena that have us looked at LTE providers around the world, testing using our phones and computers every day to send out average download speeds among 185 providers, messages and images to those who matter to us most. we tied with two Singapore providers for first place. Offering what is yours to share by following that basic This top global ranking is a direct result of the desire to be heard, to move and be moved by others, work our Technology and Operations groups have is part of what makes the human community complex accomplished in recent years, delivering unparalleled and fascinating. SaskTel provides the connectivity, wireless service to communities in Saskatchewan. the platforms for that sharing impulse, by continually As well, in early 2016, we began to apply some new upgrading and improving the systems that make it wireless technologies. We started to test and install effortless for our customers to engage in and express microcells in some areas and we were the first in that desire for connection and community. North America to deploy a new Ethernet-based antenna system—Huawei’s LampSite—which I can OUR INVESTMENT IN INFRASTRUCTURE report is doing very well. This past year was one of our finest for improving The rest of the annual report will provide details on those platforms and systems our customers depend these and many other investments we made from on. Our Fibre to the Premises (FTTP) program passed January 2015 to March 2016, in order to ensure that 38,986 homes with infiNET, putting us on schedule our residential and business customers continue to for our target of passing 100% of homes in the nine receive the best wireless, maxTV, Internet, data and major centres in the province by 2022. This multi-year IP-based services in the world. program, totalling an investment of $670 million, will provide residents in Saskatchewan’s major centres with speeds up to 260 Mbps downloading and 60 Mbps BUILDING HONEST RELATIONSHIPS uploading—the fastest speeds available in the province. As a corporation that is accountable to the people of Saskatchewan, SaskTel is itself “shared” by the On the wireless side of things, we increased our citizens of the province. In our Corporate Values, LTE capacity to 25 towers in Regina and Saskatoon, we demonstrate this connection to shareholders by essentially doubling their wireless capacity while

SASKTEL 2015/16 ANNUAL REPORT | 5 PRESIDENT’S MESSAGE (continued)

promising to “build honest relationships through open to their communities, providing them equal access to communications with all people who interact with our the economic and social development opportunities business: our customers, co-workers, partners, and that technology brings. shareholders.” Sharing an interest in SaskTel’s financial With our community investment focus on youth, rural well-being and strength, everyone in Saskatchewan life, diversity and technology, we support non-profit benefits through our contributions to the province’s and charitable organizations around the province, economic success and improved quality of life. and sponsor some of the most important sport and 2015/16 was a strong period for SaskTel financially. cultural events in every season. The Corporate Social Our net income was higher than budgeted, reaching Responsibility (CSR) Report we produce each year $126.7 million at the end of the fiscal period, March 31, accounts for everything we do to remain a socially, 2016. Our staff have done a remarkable job this year— environmentally and economically sustainable particularly in efforts to reduce spending. I am happy corporation with a strong ethical foundation. During to say that the reductions came not at the expense the reporting period, SaskTel partnered with 1,041 of service but from better prices on supplies, and not-for-profit and charitable organizations, including efficiencies in our operations. Our procurement and schools via scholarships and grants, helping them to technology staff get part of the credit here for the work serve Saskatchewan with programs that bring health, they do with our vendors. education, and fulfillment to our communities.

Despite our strong performance this year, however, We are especially proud of our I Am Stronger our financial picture continues to be at risk from campaign, which addresses bullying and cyber- regulatory developments. The regulations that affect bullying in our communities and online. In the our bottom line include spectrum auction rules, and 2015/16 fiscal period, the program approved nineteen the anticipated unbundling of television channels—not grant applications, providing more than $17,000 to to mention the regulator’s emphasis on developing a young people implementing anti-bullying initiatives. fourth national wireless carrier. None of this, however, And, as always, the SaskTel Pioneers were a source has caught us unprepared and we are confident that of inspiration, with more than 4,200 members across SaskTel will thrive in the midst of every regulatory the province contributing more than $165,000 in disruption to the industry. Competition in the market charitable donations and completing more than also remains vibrant and our wireless customers enjoy 49,000 hours of volunteer time to support worthwhile rates well below rates in most other provinces. community initiatives.

I could list dozens of other CSR highlights, but I GIVING BACK TO THE COMMUNITY would like to single out one program in particular that celebrated 65 years of generosity. Since 1950, SaskTel Sharing takes on yet another meaning for SaskTel when employees participating in SaskTel TelCare have reached we consider the many ways we reach out to, and give into their pockets and given a portion of their income back to, communities around the province. Sometimes to charitable organizations around the province. SaskTel that means finding ways to provide services to areas too contributes an additional fifty cents for every dollar remote and sparsely populated for us to recover costs donated by employees, helping TelCare over the years of the infrastructure. This year, under the Community to contribute millions of dollars to charities like the Participation model (our partnership with the leaders of United Way and many others that provide life-giving the Town of Canoe Narrows and Jans Bay First Nation), support and programming where it is needed. we were able to partner with the people in those communities to provide first-class wireless technology

6 | PRESIDENT’S MESSAGE EARNING YOUR CONFIDENCE We are proud of the recognition we receive each year for our employee-related initiatives, and this past year was no exception. MediaCorp Canada Inc. named SaskTel one of Canada’s Greenest Employers for the seventh consecutive year, one of Canada’s Top Employers for Young People for the fourth consecutive year, and one of Canada’s Best Diversity Employers for the sixth consecutive year.

Being recognized as a “top employer” is gratifying to be sure, but it is easy to forget that what these honours really mean is that we have and are able to attract “top employees.” The decision our employees make to share their lives with SaskTel, and to share the work load that keeps us on mission serving our customers, is something I do not take lightly. It may be easiest to appreciate in moments of crisis like the fires of last summer or floods of years past, but any employee’s daily choice to give customers and co-workers their best is worthy of our deepest gratitude.

The SaskTel we shared with the world in 2015/16 is detailed throughout this report, and comes directly from the dedication and hard work of our talented employees, management team, executive and board. To all of them, I extend my most sincere appreciation. And, finally, I thank our customers, shareholder, and partners— the people we share this corporation with—for your support during the past year. Everything we do depends upon our ability to continue earning the faith you place in us, and the confidence that keeps you coming back.

Sincerely, Ron Styles, SaskTel President and CEO

SASKTEL 2015/16 ANNUAL REPORT | 7 SHARING OUR STORIES

Seeing Through the Cloud

Using your smartphone to transfer funds or watch a newscast, it can seem as though the data that makes it possible is just “out there” somewhere. Hence the term “cloud storage,” but, like most things, data needs a place to reside. Just like the files on your personal computer, data, too, needs to be stored in a physical location that is reliable, safe and secure. Increasingly, businesses are outsourcing their storage needs to data centres—places measured not only by their square footage but by their capacity to guarantee maximum availability and security.

Cisco estimates that mobile data traffic has grown power, cooling, and power generation. It will be a 4,000-fold over the past 10 years and almost world-class data storage centre outfitted with the 400-million-fold over the past 15 years. In the latest technologies to provide our business customers year 2000, mobile networks carried fewer than with the security, availability and assurance they 10 gigabytes per month, and less than 1 petabyte demand from a technology provider. per month in 2005. By the end of 2015, mobile By adding the new Tier III data centre in Saskatoon, data traffic was at 3.7 exabytes per month. (One SaskTel will increase its data centre capacity significantly. exabyte is equivalent to one billion gigabytes, and SaskTel currently has a total of 31,088 square feet in one thousand petabytes.) six different data centre locations with four locations in Regina and two in Saskatoon. The new facility will DATA CENTRES consist of 24,000 square feet of building area, including an initial 9,650 square foot data hall, expandable up to With that much data moving through the hands of 30,000 square feet, and an additional 4,630 square feet individuals, businesses, governments, and institutions, for the second floor generator rooms. the need for good storage services is only going to increase. That is why SaskTel has been building state- of-the-art data centres in both Saskatoon and Regina. INTEGRATED BUSINESS During the reporting period, we opened a new Tier II COMMUNICATIONS (IBC) data centre in Regina that offers business customers This was the year we launched a new Integrated a secure and stable operating environment for their IT Business Communications (IBC) solution for our infrastructure. With SaskTel data centre services, such business customers, a digital service allowing as Managed Hosting and Colocation, businesses will them to connect with employees and customers benefit from a secure data centre environment and IT instantaneously and manage their communications infrastructure management ensuring that their critical no matter where they are. A unified communication data is kept safe. service that combines IP voice, telephony and SaskTel has been improving data centre services collaboration features, IBC allows business customers for more than 13 years now, hosting government, to make the most of today’s communications corporate, and private customers from throughout functions. The IBC basic package gives users full North America. In October 2015, we began control over an array of features and functions, construction of a new certified Tier III data centre in from audio conferencing to call trace, and from last Saskatoon, offering redundant attributes providing number redial to call park & retrieve, and many more.

8 | SHARING OUR STORIES IBC STILL OFFERS VOICE BUT NOW WITH MESSAGING, REAL TIME USER STATUS, DESKTOP SHARING, AND OTHER COLLABORATION TOOLS LIKE FILE SHARING.

IBC uses IP-based systems to take a leap forward from our legacy services like Centrex. “The service itself allows far more functionality than anything in the legacy world,” explained Dennis Ziegler, Marketing Manager – Service Development. “IBC still offers voice but now with messaging, real time user status, desktop sharing, and other collaboration tools like file sharing.”

The entire system ties together every aspect of what customers need, and makes it simple and transparent. Users can customize their settings to receive calls and transfer data with the same experience across devices and locations. “Essentially IBC expands the office to anywhere you want it to be with access to the same functionality from anywhere, all without customers knowing any different.”

On 18 January 2016, IBC celebrated a milestone with its 100th customer and 1,000th end user. Among customers taking to the new service in the last year, is the Town of Shellbrook. Kelly Hoare, the town’s administrator, is more than pleased with the capacity and control IBC offers: “We have to be able to be mobile in the event of an emergency. We now have the ability to have a remote location, remote administration, and make remote phone calls and be mobile. This is of immeasurable value.”

Kelly Hoare Chief Administrative Officer Town of Shellbrook

SASKTEL 2015/16 ANNUAL REPORT | 9 SHARING OUR STORIES

Meeting the Need for Speed

There is no denying the appeal of speed, whether it is an antelope racing across the prairie or a video of that antelope uploading to YouTube, but it is what speed allows customers to do that drives the demand for faster Internet speeds around the world.

When Akamai produced its State of the Internet Report of time and money saving value to farmers that make in the first quarter of 2015, they announced that, on for a solid business case. average, Internet speeds had increased globally by “We had an opportunity to get in front of students who ten per cent in the previous year. SaskTel stays at are considering the industry,” said Richard Redekop, a the leading edge of that trend by investing in ways Technical Sales Consultant for SaskTel. He was one of to provide faster and more reliable services. In April a handful of employees who represented SaskTel at 2015, we increased 4G capacity in 62 communities, the hackathon. enhanced LTE capacity in Regina and Saskatoon, and deployed new spectrum to increase LTE capacity. “(The students) were essentially being data scientists. They were taking information and making sense of it One of the many reasons SaskTel works hard to and solving a potential business problem.” ensure that fast, reliable service is available throughout the province is a commitment to keep up with the SaskTel sponsored its own Mini Case Challenge technological needs of the agriculture sector. As one focusing on incorporating our M2M platform into of the continent’s centres of agricultural innovation, technology for the livestock industry. Students had Saskatchewan has thousands of people who rely on just over an hour to come up with the best solution to connectivity to get their work done on fields, pastures, incorporate this technology into a proposed product and roads that are often far from urban centres. for the industry, and produced some amazing results.

From SaskTel’s perspective, it was time well spent, M2M AT EMERGING AGRICULTURE HACKATHON because one of our business priorities is to develop relationships with those who have identified M2M One way to stay on top of emerging needs and solutions, but require the network to transfer data. At possible solutions is to get tomorrow’s technology the same time, participating in an event like Emerging developers to start looking at problems and Agriculture is an expression of SaskTel’s support for opportunities today. With that in mind, last January, the economic well-being of the province. SaskTel sponsored Emerging Agriculture, Canada’s only agriculture-based “hackathon” at the University Rory Nussbaumer, Committee Chair of Emerging of Saskatchewan. Agriculture, grew up on a farm near Yorkton, and put it this way: “When companies like SaskTel contribute Students from various colleges, including Commerce, their time to such an event, it shows students how Engineering, Computer Science, and Agriculture, corporate social responsibility can work in the real gathered at Innovation Place to work with industry world with a long-term impact to Saskatchewan’s experts for three days. Finding technology solutions economy. We learn so much about corporate social for problems found on farms and ranches today, responsibility in the classroom, but SaskTel shows students looked for ways, often involving machine-to- us how it is performed in the real world.” machine communications (M2M), to provide the kind

10 | SHARING OUR STORIES HETNET Demand for speed is distributed unevenly throughout any provider’s serving area. In spots where demand is particularly high, SaskTel takes steps to respond so that congestion does not become an issue. That response has led us to work with technology suppliers to try new solutions in high- customer-density hotspots.

Partnering with Huawei Canada this past period, SaskTel was able to install what the industry calls a heterogeneous network, or HetNet architecture, in the Kinesiology building and the Riddell Centre at the University of Regina. These buildings provide the high levels of demand for wireless data that gave us the chance to see how the new “small cell” technologies work in a real-life situation. Featuring the first deployment of Huawei’s LampSite product in Canada, the U of R HetNet also uses the company’s microcell system, as the two key features in an architecture that uses a range of systems and frequencies to provide deep penetration indoors and high capacity LTE (Long-Term Evolution) coverage at speeds reaching 150 Mbps.

Peter Dang, a planner in our technology division, was one of SaskTel’s technical experts who teamed up with graduate students from the university’s Faculty of Engineering and Applied Sciences to deploy the new systems.

“This is a very exciting project for us in several ways,” said Peter. “One of the primary goals of the project was to explore the capabilities of a HetNet architecture in a high data demand environment. The LTE and UMTS small cell technologies allow us to provide high data speeds and excellent coverage to areas of high customer density. As a result, we were able to make the wireless communication experience seamless for the customer as they move from outdoor to indoor and from building to building. The project also sets us up well for future testing of various LTE advanced and cloud configurations as our network evolves.”

The experience deploying a HetNet and working with Huawei’s small cell products will be invaluable to SaskTel and its customers as we look for ways to meet Saskatchewan’s growing demand for speed and bandwidth.

Rory Nussbaumer Committee Chair of Emerging Agriculture

SASKTEL 2015/16 ANNUAL REPORT | 11 SHARING OUR STORIES

Rolling Up Our Sleeves

Some of what makes a community healthy is visible to the eye: public space where young people can gather and children can play, small businesses serving local needs, and streets, parks and other infrastructure in good condition. But other elements that make a community function well are harder to see or simply transparent: the volunteer ethic that makes people roll up their sleeves and pitch in, the confidence that leads to self- determination and self-reliance, the generosity that inspires donors to give time and resources.

For more than two decades, SaskTel employees and retirees, all members of the SaskTel Pioneers, have been volunteering at Regina’s North Central Family Centre. The centre provides a safe environment where children, families and seniors can access programs and services that are supportive, educational, and life enhancing.

Bev Cyca, Sales Associate – Business Sales & Solutions, and a long-standing member of the SaskTel Pioneers, represents them on the board for the centre. “It’s a safe place for kids and adults to go. They have programs for all ages but the focus is really on kids and education. A lot of it is geared toward Indigenous people in the neighbourhood, but there are a lot of new Canadians moving into the area so it is becoming very multi-cultural.”

Sandy Wankel Executive Director North Central Family Centre

12 | SHARING OUR STORIES The SaskTel Pioneers provide a variety of support— the Pioneers to help like this. We are not always good everything from Santa Claus at Christmas to at telling people about what we do in the community, fundraising to furniture. Sandy Wankel is the centre’s but the SaskTel Pioneers are great at partnerships Executive Director. “From our inception, the SaskTel and volunteering.” Pioneers have played a huge role in the North Central Bev added that everyone benefits when there are Family Centre,” Sandy said. “A perfect example positive stories coming out of places like the North is when we were in need of tables and chairs for Central Family Centre. “You hear all the tragedy and our conference room and our computer labs, the so on in the news, so people get certain ideas about Pioneers provided all we needed from their salvage the place. But the media seldom talks about the good program. True to SaskTel’s commitment to the news there. I believe the Centre has had a powerful community, they are currently supporting our Casino effect on the neighbourhood. We know because we Gala to help raise funds for a commercial training see it in the kids. The ones who come there and use kitchen. Our plan is to offer an accredited program the place—we see them grow up and do very well.” that will open up new opportunities for our families and clients to find work in the food industry.” BEV ADDED THAT EVERYONE BENEFITS Several Pioneers come out to help at the centre, but WHEN THERE ARE POSITIVE STORIES Sandy mentioned one retiree in particular whose COMING OUT OF PLACES LIKE THE computer skills have been invaluable. “Jim Goldie is there at least once every week or two. SaskTel NORTH CENTRAL FAMILY CENTRE. Salvage has provided the centre with computers The North Central Family Centre is also an example of for its computer room and Jim makes sure they are a community-based group that has received funding upgraded and working well for people who come in from SaskTel TelCare, the employee benevolent to use them.” fund. In 2015, TelCare celebrated its 65th anniversary. Bev Cyca is particularly proud of one project the Starting in 1950, employees wanted to pool their SaskTel Pioneers took the lead on—a neighbourhood money to lend a hand where it was needed in the clean-up. “Our provincial SaskTel Pioneers partnered province’s communities. Over the years, thousands with volunteers from the centre to go from door of SaskTel employees have donated millions of dollars to door raising awareness about recycling and we to charities, but the beauty of TelCare is SaskTel’s handed out recyclable tote bags and information on corporate matching policy. SaskTel provides fifty cents environmentally friendly cleaning. Some people from for every dollar that TelCare members donate, which the neighbourhood joined us and helped pick up litter happens automatically with payroll deductions. from the streets. We won an award for that project From January 2015 to March 2016, approximately from the International Pioneers Organization.” one thousand TelCare members donated $196,414 Asked what this kind of involvement does for SaskTel, and SaskTel matched contributions with 50 per cent— Bev said, “I think it shows the community that we are providing a total of $294,621. All of it went to support good corporate citizens, that we care about others 67 different charitable organizations right here in all walks of life. Without SaskTel’s support, we in Saskatchewan. wouldn’t have access to the salvage items that allow

SASKTEL 2015/16 ANNUAL REPORT | 13 SHARING OUR STORIES

Putting Out Fires

If you work for SaskTel, you know that the corporation’s number one priority is to serve our customers well and keep them connected wherever they live, work, and raise their families. We have worked hard to foster a culture that inspires employees to take seriously their role in serving our vision to “be the best at connecting people to their world.”

Most days, and for most employees, the focus on “We decided I should deal with SaskTel work north keeping customers connected is part of the job of the fires, as well as any power outages that might description. Working with your team and managers, have occurred that would affect SaskTel infrastructure you do your part to ensure that, down the line, the end north of La Ronge.” customer is served by the best networks, exceptional Rising winds made short work of that plan. “At one service, advanced solutions, and applications that they point during the worst of it, I was to meet my co- have come to expect from SaskTel. workers in Sucker River—they were bringing a back-up But some days that task is a bit more complicated and generator. We needed to keep the power going, but the job description goes up in smoke. then the road closed and they couldn’t come through from La Ronge.” What do you do when forest fires are blazing all around, you are the last technician north of the That was when he decided the best thing he could fireline, and the roads are blocked preventing your do would be to join the firefighting crew. “There were co-workers from bringing in the back-up generator many volunteers fighting the fires, including a First you need to keep essential communications going? Nations crew. Before joining SaskTel, I had experience Easy—you pick up a hose and start fighting the fire. in firefighting, so I joined them. I grew up with a lot of these guys so it was kind of a reunion, although I Barry Roberts, Customer Service Technician in could think of better circumstances to get together.” La Ronge, never hesitated. During the weeks to come, more than 13,000 people It was late June last year. More than thirty fires were from communities across the north would be forced burning in Saskatchewan’s forests, one of them twice from their homes by the blaze and transported to the size of Saskatoon. The town of Sucker River, temporary quarters in Saskatoon and Regina, in the near where Barry joined the fight, was at risk and the biggest evacuation effort in the province’s history. As residents were being evacuated. things turned out, communications remained open Barry lives in Stanley Mission, one of the communities for the most part, and the town of Sucker River was eventually evacuated, so when the fires began, it spared. Residents there credit the efforts of Barry made sense for him to stay near home and try to and the others who stayed behind and worked with keep communications operational. shovels and hoses to protect their homes.

14 | SHARING OUR STORIES “I AM ALWAYS IMPRESSED BY THE ENORMOUS CAPACITY OF SASKATCHEWAN PEOPLE TO RALLY AROUND EACH OTHER DURING TIMES OF CRISIS. EVACUEES FROM THIS YEAR’S UNPRECEDENTED FIRES FACED ENORMOUS UNCERTAINTY WHEN ARRIVING AT EVACUATION CENTRES. WHETHER IT WAS PROVIDING FREE CABLE AND INTERNET , TECHNICIANS PROTECTING INFRASTRUCTURE WHO BRAVELY SERVICED THE AFFECTED AREA, OR WAIVING LATE PAYMENT FEES, SASKTEL PROVIDED MUCH-NEEDED COMFORT AND SUPPORT. IT WAS AN AMAZING RESPONSE.”

– BRAD WALL PREMIER OF SASKATCHEWAN

Heroic efforts in time of fire or flood are only the most dramatic examples of our employees sharing their energies and time selflessly to help in their communities. Every day in towns and neighbourhoods across Saskatchewan, SaskTel employees are stepping up and making a difference.

Barry Roberts Customer Service Technician

SASKTEL 2015/16 ANNUAL REPORT | 15 SHARING OUR STORIES

Bringing Technology to Rider Nation

In times past, you could put thirty thousand people in one place, all gathered to watch the same spectacle, and they would be happy to meet their communication needs with some old- fashioned arm-waving, shouting, and a sign or two. When the new stadium rising over Elphinstone Street in Regina is complete and filled with its first crowd, the thirty thousand in attendance will be using those tried and true messaging methods as well as an array of newer ones they have at their fingertips thanks to smartphones and wireless technology.

Text, videos and images will be flying across the field and far beyond at speeds that would baffle the quickest defensive back. Whether it is text messages, voice calls or posts on Instagram, Twitter, and Facebook, a new complex wireless network designed and installed by SaskTel will make it all work transparently.

Scott Anderson Program Manager Regina Revitalization Initiative Stadium Project

16 | SHARING OUR STORIES Scott Anderson, our Program Manager for the overall To get the right video and messages on approximately communications build at the new stadium, and his six hundred displays throughout the complex, SaskTel team of technology staff have been doing everything is using a Distributed Video System, thanks to a key they can to ensure that the facility receives world- technology partnership. class communications infrastructure. “WE ARE WORKING WITH CISCO TO “I like to compare it to building a small city’s DEPLOY THEIR STADIUMVISION communications network from scratch. Everything you can think of is required to properly service this SOLUTION, TO CONNECT ROUGHLY 33,000-seat facility—a population comparable to SIX HUNDRED DISPLAYS, INCLUDING some of the province’s larger centres!” CONCESSION BOARDS, PUBLIC A cellular network to ensure the crowd has solid SIGNAGE, IN-STADIUM GAME-VIEWING, coverage is just one small aspect of the project REPLAYS, SPECIAL CAMERA ANGLES, SaskTel has taken on as the technology partner for the Saskatchewan Roughriders. “Wi-Fi is another critical SOCIAL MEDIA INTERACTIONS, AND piece,” said Scott. “The SaskTel Select Wi-Fi service will THE ABILITY TO SHOW SASKTEL maxTV.” be deployed using roughly six hundred APs (access points) so that SaskTel subscribers will have access to Will it be ready in time? “A construction project of this the stadium’s Wi-Fi network.” scale and complexity is never without its challenges and issues,” said Scott. “However, we are working But at the base of the new stadium’s impressive diligently toward the target date of 31 August 2016 for communications network is fibre access ensuring substantial completion.” high-capacity connectivity with an active 40 gigabit link. SaskTel and its subcontractors are installing all of As for that first big crowd of thirty thousand, they will the structured cabling for the complex. Our staff have be surrounded by video displays and screens, even already put in place roughly 190 kms of CAT6 network as they send messages from the small screens in cable and when the project is complete, approximately their hands—communicating through and beyond 36 kms of fibre backbone cabling will be deployed. the invisible world of technology and its network of cables and fibre optics encircling the stadium. Then there is the broadcast cabling to serve the SaskTel maxTron screens in the stadium, LED screens throughout the facility, and television broadcasters covering games. The broadcast network has to support roughly five hundred simultaneous video feeds. For those who are not in the stadium on game day, TSN’s coverage will be delivered via the best technology available.

SASKTEL 2015/16 ANNUAL REPORT | 17 Corporate Social Responsibility Highlights

Since SaskTel’s inception more than 100 years ago, our goal has been to connect Saskatchewan people to their world by giving them access to high quality services to make their lives easier.

Throughout the 2015/16 period, we continued • Fibre to the Premises (FTTP) targets were surpassed to breathe life into the province with our reliable by a wide margin, with 38,986 homes passed network, superior customer experience, longstanding and 28,895 connected for the period ending community partnerships, sound environmental March 31, 2016. policies, dedicated team of employees and strong • Achieved the highest ranking in customer care economic model. Our efforts are delivering on our across Canada among wireless carriers from J.D. Corporate Social Responsibility (CSR) targets and our Power in their 2015 Canadian Wireless Customer commitment to residential and business customers. Care study. CSR has been integrated into our business strategy • Won the J.D. Power award for highest television and and is helping to deliver value in terms of revenue Internet customer satisfaction in the West Region growth, operating efficiency, risk management and for a third consecutive year. strategic alignment. That is why today, SaskTel is the • Launched an Integrated Business Communications leading Information and Communications Technology (IBC) solution, a feature-rich, customizable, hosted (ICT) provider in Saskatchewan, with over $1.2 billion communication and collaboration service for in annual revenue and approximately 1.4 million business customers. customer connections, including over 614,000 • Completed development of, and successfully wireless accesses, 408,000 wireline network converted, over 600,000 wireless customers to, a accesses, 266,000 Internet accesses and over new and enhanced billing system. 107,000 maxTV subscribers.

CUSTOMERS AND SUPPLIERS Our customers come first as we aim to provide the best experience through our superior networks, exceptional service, advanced solutions, and applications. SaskTel continues to grow and evolve to deliver innovative solutions to all customers, including ensuring that remote and northern communities have access to broadband and mobile infrastructure. • SaskTel’s LTE network was ranked as one of the three fastest among 185 carriers worldwide. • More than 70% of SaskTel suppliers were located in Saskatchewan, providing economic opportunities to small and medium-sized businesses.

18 | CORPORATE SOCIAL RESPONSIBILITY HIGHLIGHTS • Launched a new Interactive Voice Response (IVR) system with fewer menu options, making it easier for customers to get to the right person and receive quicker service. • Launched SaskTel Wavelength service providing customers up to 10 Gigabits (Gb) per second of dedicated bandwidth to support latency-sensitive networking applications. • Built a new SaskTel Tier II Data Centre in Regina and commenced the construction on the new Tier III Data Centre in Saskatoon. • Expanded SaskTel Select Wi-Fi network, bringing the total number of access points to more than 1,350. • Continued work on the Regional Ethernet Transport Program, replacing rural linear transport systems with fibre rings connected to major centres, powering improvements to rural Saskatchewan. • Named one of Saskatchewan’s Top Employers for the tenth straight year. EMPLOYEE EXPERIENCE • Recognized as one of Canada’s Top Employers for SaskTel employees are part of the fabric of the Canadians over 40 for the sixth time. province, representing the diversity and culture of • Named one of Canada’s Greenest Employers for the Saskatchewan. They are our strength and help to seventh consecutive year. deliver an outstanding customer experience. All • Recognized as one of Canada’s Top Employers for around the province, you will find them working, Young People for the fourth time. raising families and volunteering. • Introduced new ICT training courses to increase • Improved our performance on the annual Hay employee understanding of the evolving industry. Group employee engagement survey by 4%. • SaskTel saw an increase in disability representation to 9.9% at the end of March 2016, up from 5.7% COMMUNITY INVESTMENT in 2004. SaskTel remains an integral part of the community. • Since 2004, SaskTel has seen total Aboriginal Through longstanding partnerships, we are making a representation rise within our organization, to 9.4% positive difference in the lives of Saskatchewan people. at the end of March 2016, up from 5.5%. • Donated more than $3,665,043 to 1,041 non- • Named one of Canada’s Best Diversity Employers profit and charitable organizations, community for the sixth consecutive year. associations, venues, events and partnerships in 229 communities throughout the province.

SASKTEL 2015/16 ANNUAL REPORT | 19 CSR HIGHLIGHTS (continued)

• Between January 2015 and March 2016, 19 grant ENVIRONMENTAL SUSTAINABILITY applications were approved with just over $17,000 As a good corporate citizen, SaskTel works to given to the youth of this province to implement balance our business priorities with protecting the their own I Am Stronger anti-bullying initiatives. environment. We are well positioned to take the next • Between January 2015 and March 2016, under step in environmental sustainability and stewardship, the Phones for a Fresh Start program, more than with a solid foundation that has organizational 13,000 devices were recycled for a total of more practices aligned with environmental policies, and than $28,000. an Environmental Management System (EMS) that • 2015 marked the seventeenth year that SaskTel and allows SaskTel to manage environmental aspects the Wicihitowin Foundation have partnered to host of our business effectively, based on International the annual Aboriginal Youth Awards of Excellence. Organization for Standardization standards (ISO 14001). • With more than 4,200 members across the • Named one of Canada’s Greenest Employers province, the SaskTel Pioneers contributed by MediaCorp Canada. SaskTel is the only more than $165,000 in charitable donations and Saskatchewan-based company to win that award in completed more than 49,000 hours of volunteer each of the first seven years. time to support worthwhile community initiatives. • Completed an environmental compliance audit • Across the province, the SaskTel TelCare program at our Yorkton Switch and Work Centres to verify contributed more than $196,414 to 67 organizations. policies, procedures, and practices are consistent Matched by a 50 per cent allocation from SaskTel, with existing environmental regulations and SaskTel’s the total funds made available equalled $294,621. Environmental Management.

20 | CORPORATE SOCIAL RESPONSIBILITY HIGHLIGHTS • Since 2009, the Phones for a Fresh Start program has recycled 84,998 wireless devices. • Internal employee-led group EnviroCare completes “greening initiatives” in the province including a partnership with the University of Regina.

ECONOMY AND SOCIETY Guided by the Province’s Plan for Growth, SaskTel continues to invest in capital expansion and upgrades. These help to stimulate economic growth, proactively meet growth needs and ensure a constantly improving network. Our investment is also helping to meet customer demand, particularly for data and cell service. COLLEEN CAMERON, SASKTEL ACCOUNT • Invested $378.0 million in capital expenditures EXECUTIVE – ABORIGINAL MARKET during the 2015/16 period to improve customer Colleen Cameron is a true role model—not only in experience and create opportunities to provide her professional capacity at SaskTel, but also in her additional enhancements and capabilities in commitment to SaskTel’s core values of community the future. investment and volunteerism. As Chair of the SaskTel • Launched Machine-to-Machine (M2M) Management Aboriginal Youth Awards, Colleen has played an Centre, an online portal that provides valuable integral part and committed countless hours over the information to business customers on data from years to planning and organizing the event. Colleen’s their M2M-enabled devices. passion for this event, and for supporting and • In partnership with Huawei and the Athabasca Basin encouraging Aboriginal youth, is truly inspirational, Development Corporation, added new cell towers and is certainly evident through her longstanding to serve the communities of Stony Rapids, Black service to the Wicihitowin Foundation. Lake, Wollaston Lake and Fond Du Lac First Nation. SaskTel considers community involvement and • Through our Community Participation Model, volunteer work as foundational to our corporate added 4G service to Canoe Lake Cree First Nation, culture, and Colleen embodies this in not only her Jans Bay and surrounding area. work with the Awards, but also through her past work as a Board Chair for St. Paul’s Hospital Foundation in Saskatoon.

In 2015, Colleen was honored with another important distinction—she was named to a five-year term as a commissioner with the Saskatchewan Human Rights Commission in Saskatoon. With her appointment, the Saskatchewan Human Rights Commission referred to Colleen as an “accomplished Executive with a strong commitment and leadership experience in Aboriginal and healthcare communities,” making it evident that Colleen’s new role with the commission is a great fit.

SASKTEL 2015/16 ANNUAL REPORT | 21 Management’s Discussion and Analysis Management’s Discussion and Analysis

Contents

24 Introduction 64 Liquidity and Capital Resources 24 Changes in Fiscal Year End 64 Cash Provided by Operating Activities 24 Caution Regarding Forward-Looking 64 Cash Used in Investing Activities Information 64 Cash Provided by (Used in) 25 Our Business Financing Activities 27 Strategic Direction 65 Capital Management 35 Performance Management 66 Capital Expenditures 35 2015/16 Targets and Results 68 Significant Accounting Policies 39 2016/17 Measures and Targets 70 Five Year Record of Service

41 Industry Outlook 73 Glossary 41 ICT Industry 42 Communications Services Sector Outlook 46 Regulatory Environment

47 Risk Management 47 Strategic Risks 50 Core Business Risks

52 Operating Results 52 Financial Summary 52 Changes in Fiscal Year End 54 Net Income 55 Return on Equity 56 Revenues 61 Other Income 61 Expenses 63 Net Finance Expense 63 Other Comprehensive Loss

SASKTEL 2015/16 ANNUAL REPORT | 23 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

INTRODUCTION forward-looking statements and that our business outlook, objectives, plans and strategic priorities may not be achieved. The following management’s discussion and analysis (MD&A) As a result, we cannot guarantee that any forward-looking focuses on the strategies, business operations, consolidated statement will materialize and we caution you against relying financial position and results of operations of Saskatchewan on any of these forward-looking statements. Forward-looking Telecommunications Holding Corporation (SaskTel or the statements are presented in SaskTel’s 2015/16 annual report, Corporation), including its major strategic business units and including in this MD&A, for the purpose of assisting readers in its subsidiaries. This discussion and analysis should be read understanding our objectives, strategic priorities and business in conjunction with the Corporation’s audited consolidated outlook as well as our anticipated operating environment. financial statements, and accompanying notes, on pages Readers are cautioned, however, that such information may 75 to 110 of this report, and includes information available to not be appropriate for other purposes. the Corporation up to May 31, 2016, unless otherwise stated. We have made certain economic, market and operational CHANGE IN FISCAL YEAR END assumptions in preparing forward-looking statements During the twelve months ended December 31, 2015, the contained in SaskTel’s 2015/16 annual report. These SaskTel Board of Directors approved a change in its year end assumptions include, without limitation, the assumptions from December 31st to March 31st. SaskTel’s transition period described in the various sections of this MD&A. We believe is the fifteen months ended March 31, 2016. The comparative that these assumptions were reasonable at May 31, 2016. If period is the 12 months ended December 31, 2014. The new our assumptions turn out to be inaccurate, our actual results financial year will align the Corporation with its sister Crown could be materially different from what we expect. Corporations and with the Government of Saskatchewan. Important risk factors including, without limitation, The explanations found within this MD&A will be comparing competitive, regulatory, economic, financial, operational the twelve-month period ending December 31, 2015, with and technological risks that could cause actual results the twelve-month period ending December 31, 2014, unless or events to differ materially from those expressed in, otherwise stated. or implied by, the above-mentioned forward-looking CAUTION REGARDING statements and other forward-looking statements in FORWARD-LOOKING INFORMATION SaskTel’s 2015/16 annual report, as well as in this MD&A, include, but are not limited to, the risks described in the Risk Many sections of this discussion include forward-looking Management section (page 47), which is incorporated by statements about SaskTel, its business outlook, objectives, reference in this cautionary statement. plans and strategic priorities, the sources of liquidity we expect to use to meet our anticipated 2016/17 cash We caution readers that the risks described in the above- requirements, and our network deployment plans. mentioned section and in other sections of this MD&A are not the only ones that could affect us. Additional risks and Forward-looking statements also include any other uncertainties not currently known to us or that we currently statements that do not refer to historical facts. A statement deem to be immaterial may also have a material adverse is forward-looking when it uses information known today effect on our financial position, financial performance, to make an assertion about the future. Forward-looking cash flows, business or reputation. Except as otherwise statements are typically identified by the words assumption, indicated by us, forward-looking statements do not reflect the goal, guidance, objective, outlook, project, strategy, target potential impact of any special items or of any dispositions, and other similar expressions or future or conditional verbs mergers, acquisitions, other business combinations or other such as aim, anticipate, believe, could, expect, intend, may, transactions that may be announced or that may occur after plan, seek, should, strive and will. May 31, 2016. The financial impact of these transactions Forward-looking statements, by their very nature, are subject and special items can be complex and depends on the facts to inherent risks and uncertainties and are based on several particular to each of them. We therefore cannot describe the assumptions, both general and specific, which give rise to the expected impact in a meaningful way or in the same way we possibility that actual results or events could differ materially present known risks affecting our business. from our expectations expressed in, or implied by, such

24 | MANAGEMENT’S DISCUSSION AND ANALYSIS OUR BUSINESS including over 614,000 wireless accesses, 404,000 wireline network accesses, 266,000 Internet accesses and over AT SASKTEL, OUR BUSINESS IS ABOUT MORE 107,000 maxTV ™ subscribers. Telco offers a wide range of THAN JUST TECHNOLOGY AND WORLD- products and services including competitive CLASS INFRASTRUCTURE. OUR BUSINESS • voice, data and Internet services, IS ABOUT COMMUNITY, EMPLOYEES WHO • wireless data services, MAKE A DIFFERENCE, OUTSTANDING • maxTV entertainment services, • data centre services, and CUSTOMER EXPERIENCES, AND CONNECTING • cloud-based services. OUR SHAREHOLDERS—THE PEOPLE OF SASKATCHEWAN—TO THEIR WORLD.

Saskatchewan Telecommunications Holding Corporation Holding Corporation Saskatchewan Telecommunications Holding Corporation (SaskTel) is a Saskatchewan Crown corporation. SaskTel’s wholly owned subsidiaries offer a wide array of products, services and solutions to customers in Saskatchewan as well as around the world. The subsidiaries include Saskatchewan Telecommunications, Saskatchewan Telecommunications Architect’s rendering of SaskTel’s new Tier III Data Centre in Saskatoon, currently under construction. International, Inc., DirectWest Corporation, and SecurTek Monitoring Solutions Inc. These subsidiaries have a Telco is the largest and most comprehensive provider combined workforce of approximately 4,000 Full Time of communications networks within the province of Equivalents (FTEs), making SaskTel one of the largest Saskatchewan. These leading-edge networks include employers in Saskatchewan. the following: • world-class Fourth Generation (4G) and Long Term

S Evolution (LTE) wireless networks T T S • Long Term Evolution-Time Division Duplex (LTE-TDD) fixed wireless for rural broadband access (High Speed Fusion Saskatchewan Internet service) Telecommunications

Holding • Wi-Fi in select locations (SaskTel Select Wi-Fi service)

Corporation S

™ T

• advanced Fibre to the Premises (FTTP) infiNET network

• extensive Internet Protocol Television (IPTV) footprint in

SaskTel’s subsidiaries serve

customers in Saskatchewan and around the world. major centres across the province (maxTV) • ubiquitous local access network throughout both urban and rural Saskatchewan

Saskatchewan Telco is one of the province’s largest employers with Telecommunications (Telco) approximately 3,700 FTEs. Its head office is located in Your Life. Connected.™ www.sasktel.com Regina, Saskatchewan. Telco is the largest subsidiary business within SaskTel. It is the leading Information and Communications Technology (ICT) provider in Saskatchewan, with over $1.2 billion in annual revenue and approximately 1.4 million customer connections

SASKTEL 2015/16 ANNUAL REPORT | 25 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Saskatchewan DirectWest Corporation Telecommunications (DirectWest) International, Inc. (SI) www.directwest.com www.sasktelinternational.com DirectWest is a wholly owned subsidiary of SaskTel. It is a local SI is a wholly owned subsidiary of SaskTel. It was established search and marketing services company and the exclusive in 1986, and since then has completed projects in forty provider of mysask411, Saskatchewan’s best source for local countries and six continents. Through its unique relationship information. mysask411 enables consumers and businesses with Telco, SI has direct access to Telco knowledge, to search, find and connect with local businesses, people experience and resources. This gives SI a competitive and communities through a multiplatform approach that advantage in the market as it brings an actual operational includes print; online; mobile and other digital mediums, perspective to the products and services it sells. including search engine optimization; maxTV services; and social media marketing. Through this network of local media/ The SI product portfolio has software solutions for service platform assets that are familiar to and used by Saskatchewan and resource inventory management, service and resource consumers regularly, DirectWest helps businesses connect activation, and incident and problem management. This to consumers by placing optimized content on multiple product suite focuses on enabling and automating the core platforms available everywhere people search. operations of any communications service provider. SI’s service and resource order management solution manages DirectWest’s head office is located in Regina, Saskatchewan, over 12 million lines across multiple service providers while and the company employs approximately 116 FTEs. the service and resource activation solution processes over 1.5 million requests per week. SI’s customer base ranges SecurTek Monitoring from Tier I to Tier III service providers across North America. Solutions Inc. (SecurTek) SI is a key supplier to CenturyLink, one of the largest www.securtek.com communications companies in North America. SecurTek is a wholly owned subsidiary of SaskTel. Founded in 1999, it provides In addition to these core products, SI offers a services commercial and residential video monitoring, access control, portfolio that includes communications consulting, medical alert, lone worker, and interactive services. SecurTek operational effectiveness consulting, design and provides monitoring services to almost 77,000 customers deployment services, managed services, and SaskTel ICT across Canada. Through their dealer program, SecurTek services geared toward communications services providers partners with over 100 independently owned firms including around the globe. SI possesses a significant differentiator retail, wholesale, and servicing dealers who provide security to many of its competitors in this space given its ability to sales and service expertise to their customers. consult from the perspective of an operator with hands-on experience and history. SecurTek is an Underwriters Laboratories Canada (ULC)-rated monitoring station and is certified at the 5-diamond level by SaskTel International’s head office is located in Regina, the Central Station Alarm Association (CSAA). This makes all Saskatchewan, and the company employs approximately of SecurTek’s monitoring stations comparable to best-in-class 49 FTEs. stations across North America.

SecurTek’s head office and central monitoring station are located in Yorkton, Saskatchewan, with additional monitoring stations in Winnipeg, Manitoba and Aurora, Ontario. The company employs approximately 126 FTEs.

26 | MANAGEMENT’S DISCUSSION AND ANALYSIS STRATEGIC DIRECTION Our Vision, Mission, and Values WE ARE ACHIEVING OUR VISION OF BEING THE BEST AT CONNECTING PEOPLE TO VISION: To be the best at connecting people to their world. THEIR WORLD THROUGH OUR DEDICATION TO EXECUTING ON FIVE CORE STRATEGIES. MISSION: To provide the best customer PERSISTENT PROGRESS ON SASKTEL’S experience through our superior networks, TRANSFORMATION IN OUR RAPIDLY exceptional service, advanced solutions CHANGING INDUSTRY IS KEY TO OUR and applications. LONG-TERM SUCCESS. VALUES: Honesty, Integrity, and Respect.

Alignment to our Shareholder SaskTel is a Crown corporation of the Province of SaskTel’s Future State Saskatchewan. In addition to the needs of the marketplace, As changes to customer demands, technology, competition, the company’s overall strategic direction is guided by the data traffic, and regulations continue their rapid advance, priorities of the provincial government. SaskTel is progressing in the transformation of its business. Investments in customer service, new network technologies, In September 2012, the systems, processes, and workforce skills are ensuring that this Government released transformation becomes a reality. While staying true to our the Saskatchewan roots and our loyal customer base, SaskTel will continue to Plan for Growth: Vision 2020 and Beyond. This multi-year be the premier provider of next-generation information and plan serves as the governing framework for the future communications technology services within Saskatchewan development of the province. Six core growth-oriented and beyond. priorities were outlined in the plan, to which all Saskatchewan Crown corporations are expected to contribute: The experience that customers are demanding from SaskTel is changing and we must change along with our customers. 1. Investing in infrastructure Ultimately, we seek to enable consumers’ digital lives and 2. Developing a skilled workforce help businesses thrive through technology. In order to 3. Ensuring competitiveness achieve this, SaskTel focuses on improvements through 4. Increasing export trade our Customer Experience (CX) First program. We are also 5. Advancing the province’s natural resource investing significantly in our customer self-serve capabilities, strengths through innovation providing customers a greater number of options for 6. Maintaining sound fiscal management interacting with SaskTel.

The Government has re-affirmed its commitment to the Implementing state-of-the-art converged, intelligent networks priorities outlined in the Saskatchewan Plan for Growth. is the foundation of SaskTel’s future success. SaskTel has SaskTel continues to align itself to these priorities through always been known, and will continue to be known, for its prudent investments in infrastructure, the development of a unrivalled network capabilities and coverage. As we move skilled workforce, ensuring competitiveness, and maintaining to Internet Protocol (IP)-based networks, this will continue sound fiscal management (through greater efficiencies and to be the case. The development of our converged, collaboration with other Crown corporations). intelligent broadband network will result in a ubiquitous, seamless customer experience across networks and devices. SaskTel’s vision, mission, core themes, and core strategies Customers will have one broadband access that will be were developed by the Board of Directors and Management served via mobile, fixed, and Wi-Fi networks. with this direction from the shareholder in mind.

SASKTEL 2015/16 ANNUAL REPORT | 27 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

The intelligent broadband network will facilitate the delivery of Core Themes new converged services for both consumers and businesses. Consumers will benefit from network access, packaged with TRANSFORM communication, television, and security services. Businesses OPTIMIZE will be offered network access, data centre, and information To transform To operate our technology (IT) services, providing end-to-end solutions for services, people, our business customers. Professional services, managed IT processes, systems existing network services, and managed cloud services will form the nucleus and technology to to the benefit of of our newest offerings. be successful in the people of Supporting the transformation of customer experience, along the long term. Saskatchewan. with the development of converged networks and services, will be an equally important transformation of SaskTel’s information technology infrastructure. End-to-end business Achieving SaskTel’s vision, mission, and future state, requires processes and systems will be improved, leading to enhanced that we continue to focus on two themes that frame and capabilities in our sales, fulfillment, assurance, and billing guide the company’s overall strategic direction—Transform activities. These new capabilities will better facilitate how and Optimize. SaskTel will aggressively develop new services customers do business with SaskTel, improve our speed to and markets that will keep the company successful over market, and make it easier for employees to do their work. the long term (Transform) while continuing to operate our existing network to the benefit of the people of These investments in our future state will contribute to Saskatchewan (Optimize). Taken together, these themes SaskTel continuing to differentiate itself by continue to provide the overarching framework for SaskTel’s • delivering a superior network and infrastructure, five Core Strategies. • offering the best solutions, and • remaining local and committed. 2015/16 Core Strategies SaskTel’s five Core Strategies for 2015/16 were:

Customer: Deliver an outstanding customer experience.

Processes/Systems: Transform our processes and systems to enhance the delivery of products and services.

Infrastructure: Continue to build a converged intelligent broadband network.

Workforce: Evolve and align our workforce to achieve our business goals.

Financial: Maintain financial sustainability through profitable revenue growth and continuous improvement.

The following sections outline each of these strategies and the achievements that were made toward realizing them during 2015/16.

28 | MANAGEMENT’S DISCUSSION AND ANALYSIS CORE STRATEGY: CUSTOMER DELIVER AN OUTSTANDING CUSTOMER EXPERIENCE

The customer comes first and foremost at SaskTel. Consistently delivering an outstanding customer experience is a key factor in differentiating SaskTel from our competitors. To achieve this, SaskTel will design and deliver a positive customer experience every time. A balance between customer needs and SaskTel’s profitability will be consistently maintained. We will: • Do it right the first time. • Own it and fix it quickly, if things go wrong. • Make it easy for our customers. • Set clear expectations and live up to our commitments. • Respond quickly to the unexpected.

To differentiate ourselves, we will focus on three areas of customer experience: • We have a superior network and infrastructure. • We deliver the best solutions. • We are local and committed.

2015/16 ACHIEVEMENTS • Launched the new eCommerce wireless buy platform, • Achieved the highest ranking in customer care across adding enhanced self-serve capabilities and convenience Canada among wireless carriers from J.D. Power in their for our customers. 2015 Canadian Wireless Customer Care Study. • Began offering “Roam and Relax” travel rates, providing • Won the J.D. Power award for highest television and significant rate reductions for wireless roaming Internet customer satisfaction in the West Region for a third beyond Canada. consecutive year. • Launched Machine-to-Machine (M2M) Management • Continued implementation of the industry best practices Centre, an online portal that provides valuable information CX First program. to business customers on data from their M2M • Launched our Integrated Business Communications enabled devices. (IBC) solution, a feature-rich, customizable, hosted • Launched a new Interactive Voice Response (IVR) system communication and collaboration service for with fewer menu options making it easier for customers to business customers. get to the right person and receive quicker service. • Launched SaskTel Wavelength service providing customers up to 10 gigabits (Gb) per second of dedicated bandwidth to support latency-sensitive networking applications.

SASKTEL 2015/16 ANNUAL REPORT | 29 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

CORE STRATEGY: PROCESSES AND SYSTEMS TRANSFORM OUR PROCESSES AND SYSTEMS TO ENHANCE THE DELIVERY OF PRODUCTS AND SERVICES

SaskTel continues to operate at the cutting edge of technology, including advanced networks and services. We also continue to operate a number of legacy technologies and systems that support our core infrastructure. Rapidly evolving technologies and process innovations are creating opportunities to streamline and enhance SaskTel’s ability to support and deliver our services.

End-to-end business processes and systems will be transformed to improve our sales, fulfillment, assurance and billing capabilities. These are critical building blocks of a market leader. Streamlined processes supported by simplified systems will enable the timely introduction of new services and the optimization of existing services. These new processes will make it easier for our customers to do business with SaskTel. While achieving this transformation, we will remain competitive, maintaining market share and profitability.

2015/16 ACHIEVEMENTS • Completed development of, and successfully converted • Completed the third phase of SaskTel’s Customer over 600,000 wireless customers to, a new and enhanced Relationship Management (CRM) program. This system billing system. enhancement helped to simplify processes between • Implemented Information Technology Infrastructure Library customer service orders and service delivery. (ITIL) standards as foundational service management • Introduced online purchasing and self-management practices for new Managed and Emerging services. capabilities for wireless customers.

30 | MANAGEMENT’S DISCUSSION AND ANALYSIS CORE STRATEGY: INFRASTRUCTURE CONTINUE TO BUILD A CONVERGED INTELLIGENT BROADBAND NETWORK

SaskTel is continuing to expand our world-class network infrastructure. The Infrastructure Strategy has provided the focus required to deliver Saskatchewan’s premier converged broadband network.

Using a combination of fibre and wireless technology, SaskTel will deliver converged broadband connectivity to Saskatchewan that is critical to being a market leader. We intend to use fibre in the major centres and some rural areas, complemented with a combination of fixed LTE and copper. Externally, this infrastructure will support customer expectations of being available anytime, anywhere, on any device, combined with a quality customer experience. Internally, the infrastructure will result in more efficient and cost effective service development, deployment and network maintenance.

Expansion of our data centre capabilities will provide SaskTel with the required infrastructure for growth opportunities inside and outside Saskatchewan.

2015/16 ACHIEVEMENTS • Enhanced LTE capacity in Regina and Saskatoon to meet • Expanded our Tier II data centre in Regina. increasing customer demand. • Commenced construction on the new Tier III data centre • Completed rollout of High Speed Internet to six in Saskatoon. communities along with download speed upgrades to • In partnership with Huawei, added new cell towers to serve 10 Mbps in 16 existing communities. the communities of Stony Rapids, Black Lake, Wollaston • Expanded our Select Wi-Fi network bringing the total Lake and Fond Du Lac First Nation. number of access points to over 1,350. • Through our community participation model, added 4G • Continued work on the Regional Ethernet Transport service to Canoe Lake Cree First Nation, and Jans Bay and Program, replacing rural linear transport systems with fibre surrounding area. rings connected to major centres. • Added 4G capacity to 72 rural and 17 resort communities. • Deployed AWS-1 spectrum purchased from WIND Mobile, significantly increasing capacity and speed on the wireless network in nine major centres across the province.

SASKTEL 2015/16 ANNUAL REPORT | 31 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

CORE STRATEGY: WORKFORCE EVOLVE AND ALIGN OUR WORKFORCE TO ACHIEVE OUR BUSINESS GOALS

At the centre of SaskTel’s capability to deliver an outstanding customer experience and implement new advanced technologies while transforming and optimizing the business is SaskTel’s world-class workforce. This workforce is key to advancing the direction outlined in the corporation’s strategies.

It is critical to have the right people with the right skills properly aligned to enable delivery of the corporate priorities.

We are committed to continuously developing our employees and to remaining the employer of choice in order to attract and retain a highly engaged, world-class workforce. Our people are our strength; we are SaskTel, we are a team and we are representative of the province we serve. We provide a positive customer experience that meets our customer expectations, while maintaining profitability.

Each of us is accountable for our company’s future.

2015/16 ACHIEVEMENTS • Enhanced corporate culture through promotion of the • Improved our performance on the annual Hay Group following cultural principles: employee engagement survey by 4%. » Our people are our strength • Won numerous MediaCorp awards including the following: » We deliver outstanding customer experience » Named one of Canada’s Best Diversity Employers for the » We are accountable and responsible sixth consecutive year • Introduced new ICT training courses. » Named one of Saskatchewan’s top employers for the • Continued evolution of sales incentive programs. tenth straight year » Recognized as one of Canada’s Top Employers for Canadians over 40 for the sixth time » Named one of Canada’s Greenest Employers for the seventh consecutive year » Recognized as one of Canada’s top Employers for Young People for the fourth time

32 | MANAGEMENT’S DISCUSSION AND ANALYSIS CORE STRATEGY: FINANCIAL MAINTAIN FINANCIAL SUSTAINABILITY THROUGH PROFITABLE REVENUE GROWTH AND CONTINUOUS IMPROVEMENT

Strong financial management continues to be a critical component of SaskTel’s strategic direction as the changing industry environment requires us to preserve profit margins on legacy services while we make significant investments in new infrastructure along with the development of new growth services.

To ensure our long-term financial viability, SaskTel will increase focus on financial management of both costs and revenues. Profitability for new and classic services will be supported through enhancements to management reporting. Operational excellence will continue to be a central focus throughout all areas of the organization. Capital costs will be managed through a selective approach to capital investments in order to maximize hard benefits received.

Through this balanced approach, SaskTel will provide long-term, industry-comparable returns to the Province of Saskatchewan.

2015/16 ACHIEVEMENTS • Capital spending on strategic areas: • Achieved revenue growth from the launch of new » Fibre network deployments managed and emerging services. » Customer self-serve • Through cost management efforts throughout the » Wireless network capacity Corporation, we reduced costs year over year. » Data centre expansions • Continuous improvements were pursued in a » Product development number of areas: » Business and support system enhancements » Crown collaboration initiatives » System and process enhancements » Promotion of customer self-management » Potential cost sharing with external partners

SASKTEL 2015/16 ANNUAL REPORT | 33 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

2016/17 Strategic Direction SaskTel continually reviews and assesses its overall strategic direction and performance toward achieving its Vision and Mission. Heading into the 2016/17 fiscal year, SaskTel will focus on the following five Strategic Goals.

These goals will focus SaskTel’s initiatives and activities throughout 2016/17. Bold movement toward these goals will position SaskTel for future success in our constantly changing industry.

Strategic Goal Focus Areas Deliver an outstanding customer experience: Customer • Continued improvements to customer experience through our experience (CX) is a critical differentiator for SaskTel across our CX First program. various market segments. We will develop specific approaches • Increased use of business intelligence techniques. in each of these segments that will deliver a positive customer • Continued investments in customer self-management experience every time. capabilities for wireline products. • Achievement of customer satisfaction targets in both the consumer and business markets. • Provision of a stable, secure, and reliable wireless network. Increase broadband penetration: Broadband access is SaskTel’s • Continued deployment of fibre access network bringing infiNET core service of the future. Customers have become more reliant to customers in major centres across the province, including on their broadband connections for accessing their world. Weyburn and Estevan. SaskTel will remain the leader in providing superior broadband • Continued expansion of our SaskTel Select Wi-Fi network. access services in Saskatchewan. • Expansion of our Rural Ethernet Transport (RET) network. Capitalize on breadth of services: SaskTel and its subsidiaries • Delivery of services that work seamlessly over all devices and offer the widest breadth of information and communications networks (ex: Consumer Unified Communications, Go Apps, services in Saskatchewan. We will continue to bundle these Connected Home). services together, creating simple, complete solutions for • Preparation for Voice over LTE (VoLTE). our customers. Accelerate transformation to an ICT company: The market for • Timely development of new managed and emerging services for IT-based managed and emerging services provides opportunities the business market. for growth within our industry. Capturing these opportunities will • Completion of the Tier III data centre in Saskatoon. require a more vigorous transformation of our organization in • Creation of enhancements to sales, fulfillment, assurance, and line with the rapid pace of industry change. billing processes for new managed and emerging services. Grow revenue and profit from the business market: As products • Expansion and enrichment of business sales channels within the consumer market become more commoditized, in Saskatchewan. greater opportunities for growth exist within the business market. • Generation of new business outside Saskatchewan. A strong focus on selling new managed and emerging services • Refocus of sales efforts onto new managed and within Saskatchewan and select markets outside the province emerging services. will position SaskTel to make inroads in the business market.

34 | MANAGEMENT’S DISCUSSION AND ANALYSIS PERFORMANCE MANAGEMENT SASKTEL’S FUNDAMENTAL RESPONSIBILITY IS TO PROVIDE WORLD-CLASS COMMUNICATIONS INFRASTRUCTURE AND SERVICES TO THE CITIZENS AND BUSINESSES OF SASKATCHEWAN WHILE ALSO PROVIDING REQUIRED FINANCIAL RETURNS TO OUR SHAREHOLDER. FULFILLING THIS RESPONSIBILITY IS THE RESULT OF PROVIDING AN EXCELLENT CUSTOMER EXPERIENCE, CONTINUOUS IMPROVEMENTS TO OUR OPERATIONS, AND THE ENGAGEMENT OF OUR EXCEPTIONAL WORKFORCE. ADAPTING TO CONSTANT CHANGES IN OUR INDUSTRY IS KEY TO SASKTEL’S FUTURE SUCCESS.

Balanced Scorecard SaskTel utilizes a balanced scorecard to monitor and measure performance in four areas critical to the company’s long- term success: Customer, People, Operational Excellence, and Financial. The Key Success Measures (KSMs) found within the scorecard are strategic and ultimately define success. They enable Management to track progress toward our strategic goals and make adjustments as required. Targets for each balanced scorecard measure were developed by Management and approved by the Board of Directors.

It is important to note that in 2015, the Government of Saskatchewan changed the fiscal year-end dates for all Crown Corporations from December 31 to March 31 in order to better align Crown sector reporting with the rest of the government. As a result, the 2015/16 fiscal period comprises 12 months with an additional three months of outcomes to the end of March 31, 2016. The targets and results in the tables below show the actuals at both December 31, 2015, and March 31, 2016. Results are assessed as “achieved,” “partially achieved,” or “not met” according to the targets to the end of December 31, 2015.

The Year in Review: 2015/16 Targets and Results CUSTOMER PERSPECTIVE 2015/16 Customer measures focused strongly on customer satisfaction, which is still one of the most important differentiators for services within our industry. The customer perception measures found within the Customer Perspective of the balanced scorecard provide insight into the effectiveness of our customer service activities and how we are performing on our overall strategy of delivering an outstanding customer experience. In some cases, factors beyond SaskTel’s control (such as regulatory decisions) have an impact on customer perception. Such factors are taken into account when assessing our performance on these measures.

2013 2014 Dec. 31, 2015 Dec. 31, 2015 Mar. 31, 2016 Measure Result Actual Actual Actual Target Actual Customer Satisfaction Customer perception – Maintained Maintained 1 point below Maintain 2014 1 point below 2014 Actual ● consumer 2012 Actual 2013 Actual 2014 Actual Improved by Improve by Customer perception – 1 point over Maintained Improved by 2 points 2 points over 1 point over ● business 2012 Actual 2013 Actual over 2014 Actual 2014 2014 Actual 2015 Performance Customer satisfaction results, as measured by customer perception, were mixed in 2015. We were unable to meet our target for perception in the consumer market, coming in 1 point short. A significant contributing factor to this result was likely the negative publicity created by the federal government toward the overall communications industry throughout 2015. We outperformed on the customer perception metric within the business market by exceeding our target by 1 point. This increase in our business market perception represents an improvement over our 2014 performance where we simply met the target. Throughout 2015, we increased our focus on the business market considerably and this certainly contributed to the improvement in customer perception. SaskTel continues to be committed to achieving an outstanding customer experience. Programs focused on delivering this commitment, such as Customer Experience (CX) First, will advance our progress on achieving, and preferably exceeding, both of our customer perception targets in 2016/17.

● achieved ●• Partially Achieved ● not met

SASKTEL 2015/16 ANNUAL REPORT | 35 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

PEOPLE PERSPECTIVE The 2015/16 People measures once again focused on two measures: employee engagement and learning and growth. Employee engagement is a critical measure with respect to our workforce because engaged and motivated employees ensure the implementation and long-term success of SaskTel’s strategic initiatives. In 2015, a new metric was introduced for learning and growth that measures employees’ and their managers’ confidence that they have the skill sets to successfully perform their jobs in alignment with SaskTel’s changing business requirements. This is key to ensuring that the workforce is ready for new ICT technologies and business models. The previous learning and growth measure around “ICT learning and development” was achieved by early 2015 and has therefore been removed as a metric.

2013 2014 Dec. 31, 2015 Dec. 31, 2015 Mar. 31, 2016 Measure Result Actual Actual Actual Target Actual Employee Engagement Hay survey result for 4% above 3% above 4% above 2% above 4% above 2014 Actual ● employee engagement 2012 Actual 2013 Actual 2014 Actual 2014 Actual Learning and Growth Hay survey result for skill N/A N/A 85% 83% 85% ● evolution 2015 Performance Employee engagement results improved once again in 2015, coming in at 2% above our target and 4% above the 2014 results. According to Hay Group, significant increases in the engagement score are difficult to achieve. The large increase over 2014 is thus a very positive achievement given that a high level of employee engagement is a significant contributor to a productive workforce. SaskTel is now at Hay’s North American norm with respect to engagement. Key engagement improvements from 2014 show employees: • continue to be optimistic about the future, • continue to like SaskTel as a place to work and are proud to work here, and • would recommend SaskTel as a place to work.

The learning and growth measure around the Hay survey result for skill evolution is a new indicator introduced for 2015. This indicator measures the confidence that employees and managers have in their skill sets. The target of 83% was exceeded by 2%, coming in at 85%. Employees and managers expressed high levels of confidence in the following areas: • Having the knowledge and skills required to successfully perform their current jobs • Skill sets are evolving to meet the demands of the business

● achieved ●• Partially Achieved ● not met

36 | MANAGEMENT’S DISCUSSION AND ANALYSIS OPERATIONAL EXCELLENCE PERSPECTIVE Operational Excellence measures focused on the continuing execution of the Fibre to the Premises (FTTP) program and SaskTel’s overall operational efficiency as measured by earnings before interest, taxes, depreciation, and amortization (EBITDA) margin. The FTTP program and ongoing improvements are key factors in delivering on our Infrastructure Strategy and maintaining competitive positioning and profitability.

2013 2014 Dec. 31, 2015 Dec. 31, 2015 Mar. 31, 2016 Measure Result Actual Actual Actual Target Actual FTTP Execution # of homes passed 41,809 24,204 38,210 27,200 38,986 ● # of homes connected 16,166 19,023 24,249 18,000 28,895 ● Efficiency EBITDA margin 24.6% 24.8% 26.6% 25.1% 26.8% ● 2015 Performance Execution on our FTTP program exceeded expectations in 2015. We surpassed our targets for both number of homes passed and number of homes connected by wide margins. This represents a significant improvement over 2014 results where we did not achieve our homes passed target. Due to favourable weather conditions and resolution of capacity problems that facilitated increased construction activity in our Fibre Serving Areas (FSAs) throughout 2015, we were able to not only clear the backlog of work left over from 2014 but also exceeded our 2015 target. Likewise, homes connected surpassed expectations as strong demand for infiNET service showed no signs of slowing down in 2015.

EBITDA margin is a key proxy for our overall operational efficiency. We exceeded both our 2015 target and our 2014 results. This continued improvement in EBITDA margin performance is a result of a combination of continuous improvement activities including Crown collaboration, business simplification, and a strong focus on controlled spending in the midst of increased competition throughout 2015.

● achieved ●• Partially Achieved ● not met

SASKTEL 2015/16 ANNUAL REPORT | 37 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

FINANCIAL The 2015 Financial measures focused on shareholder value, revenue growth, net income, and the intensity of capital investment. Consistent with our Financial Strategy, these measures concentrate on ensuring insight into the continuous improvement of SaskTel’s long-term financial performance.

2013 2014 Dec. 31, 2015 Dec. 31, 2015 Mar. 31, 2016 Measure Result Actual Actual Actual Target Actual Shareholder Value ROE 14.0% 10.5% 12.7% 10.2% 16.8% ● Debt ratio 49.1% 52.8% 51.3% 53.2% 51.9% ● Revenue Growth

Total revenues $1,205.7M $1,231.0M $1,257.7M $1,304.6M $1,574.4M ●• Managed and emerging N/A N/A $10.1M $28.1M $13.1M ● services revenues Net Income Net income $90.7M $76.4M $97.7M $76.8M $126.7M ● Network & IT Spend Capital intensity 28.6% 21.2% 21.7% 23.0% 21.8% ● 2015 Performance In 2015, we were once again able to deliver a higher-than-expected Return on Equity. As in 2014, this was largely due to exceeding our targeted net income for the year.

Our debt ratio came in below the 2015 target and below 2014 results. This was largely due to increased equity because of strong earnings.

Total revenues came in slightly below target due largely to a combination of increasing competition, slower than anticipated market traction for new managed and emerging services, and lower than anticipated wholesale revenues from other communications providers.

Managed and emerging services revenues came in below target due largely to delays in key product launches that reduced the level of new revenue that was expected from these services in 2015. Product development and launch activities continue and will contribute to the targets for new revenue streams going forward.

Net income greatly exceeded expectations. Given the lower-than-expected revenue growth that occurred, a strong focus on the management of expenses was once again a critical factor in generating this healthy net income result.

Capital intensity came in lower than targeted. This result is once again due to prudent management of capital spending within our overall capital program.

● achieved ●• Partially Achieved ● not met

38 | MANAGEMENT’S DISCUSSION AND ANALYSIS Looking Forward: 2016/17 Measures and Targets SaskTel’s balanced scorecard measures are reviewed and updated on an annual basis to reflect changes in the business and industry environment. An annual review is conducted to ensure that SaskTel is focusing on measuring those key success factors that are most relevant to the company within the new plan’s time horizon. Heading into 2016/17, the balanced scorecard measures have seen some changes, with some new metrics added and others retired. The 2016/17 balanced scorecard measures and targets are outlined below:

CUSTOMER PERSPECTIVE One of SaskTel’s key strategic goals in 2016/17 is to deliver an outstanding customer experience. For the past several years, measuring our performance in the vitally important area of customer satisfaction was focused on improvements to customer perception indicators within both the consumer and business markets. SaskTel will continue to use customer perception as a key indicator in 2016/17. In some instances, customer perception is impacted by circumstances beyond SaskTel’s control (such as regulatory decisions) that can negatively affect a customer’s view of SaskTel regardless of the quality of service they may have received. As a result, new measures are under development for 2017/18 that will focus on customer experience. Ultimately, this will give us a more accurate indication of how well we are serving customers through insights into the experience our services provide in both the consumer and business markets. Measures based on customer experience are consistent with the investment we have made in our Customer Experience (CX) First program.

2016/17 Measures and Targets

Measure 2016/17 Target Employee Engagement Customer perception – consumer +1 above 2015/16 Actual Customer perception – business +1 above 2015/16 Actual Customer experience – consumer N/A Customer experience – business N/A

PEOPLE PERSPECTIVE To deliver an outstanding customer experience and further our 2016/17 strategic goal of accelerating the transformation of SaskTel to an ICT company, the continued engagement and skill evolution of our outstanding employees is of vital importance. Employee engagement is measured through our annual Hay survey and is demonstrated through our employees’ dedication to SaskTel and their willingness to go above and beyond in their work. Given the large amount of change facing SaskTel and the industry, maintaining high levels of employee engagement is a key factor in successfully navigating this transformation through the creation of a positive environment and work experience. Despite SaskTel’s extraordinary results on this metric in 2015/16, we are still seeking to see an improvement of 1% above our existing engagement score heading into 2016/17

Another factor vital to preparing the workforce to meet the challenges ahead is to ensure that employee skills and abilities stay aligned to the changes in the business environment. As a result, we are continuing to measure learning and growth through the Hay survey by assessing employees’ and managers’ confidence that they have the skill sets for success in their jobs heading into the future. This metric provides some indication of the degree to which the workforce is ready for a more rapid transformation of SaskTel to an ICT company.

2016/17 Measures and Targets

Measure 2016/17 Target Employee Engagement Hay survey result for employee engagement 1% above 2015/16 Actual Learning and Growth Hay survey result for skill evolution Maintain 2015/16 Actual

SASKTEL 2015/16 ANNUAL REPORT | 39 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

OPERATIONAL EXCELLENCE PERSPECTIVE 2016/17 will see a continued focus on measuring the ongoing execution of our Fibre to the Premises (FTTP) program. FTTP is a critical component of delivering higher bandwidth to customers throughout Saskatchewan’s nine major centres and is therefore important to the realization of our 2016/17 strategic goal of increasing broadband penetration. This program is also important to successfully positioning our Internet access services vis-à-vis key competitors and increasing operational efficiency over the long run. Overall, operational efficiency will continue to be measured via EBITDA margin.

2016/17 Measures and Targets

Measure 2016/17 Target FTTP Execution # of homes passed 16,319 # of homes connected 15,466 Efficiency EBITDA margin 26.8%

FINANCIAL PERSPECTIVE The ongoing transformation of the ICT industry due to changing customer demands, rapidly evolving technology, increasing competition, and regulatory instability is contributing to pressures on SaskTel’s revenues, costs, and profit margins. Significant investments in capital programs that are transforming our networks, operations, and service offerings are continuing in order to keep SaskTel competitive. In order to offset declining revenues in traditional lines of business, SaskTel will continue to seek new revenue sources from managed and emerging services that will help to move us toward our 2016/17 strategic goal of growing revenue and profit from the business market. We will also focus on continuous improvement and operational cost management. Together, these efforts will result in consistent increases in net income as we work toward our long-term ROE goal of 12%.

2016/17 Measures and Targets

Measure 2016/17 Target Shareholder Value ROE 11.8% Debt ratio 50.8% Revenue/Gross Margin Total revenues $1,287.4M Revenues from Telco business market $372.0M Gross margin from managed and emerging services $21.7M Net Income Net income $104.2M Capital Capital intensity 25.7%

40 | MANAGEMENT’S DISCUSSION AND ANALYSIS INDUSTRY OUTLOOK sectors as new technologies are introduced, barriers to entry fall, and global competitors enter new markets. A number Information and Communications Technology of significant trends related to these innovations are driving (ICT) Industry transformation pressures for incumbent firms within the Industry Canada has identified the ICT Industry as one of the communications services sector: most important growth industries in Canada.1 They define the • Increasing customer expectations, including the desire for industry as being made up of four distinct sectors: customer self-serve applications and faster time to market • Communications Services for new services.3 • Software and Computer Services • Technology evolution and innovation with advances • ICT Manufacturing in network virtualization, 5G wireless networks, the • ICT Wholesaling development of the Internet of Things (IoT), 4K/UHD TV, Web Real Time Communications (WebRTC), and the Approximately 37,000 companies operate within the industry utilization of Big Data. in Canada, the vast majority (88%) within the software and • More complex and intense competition from non- computer services sector. The communications services traditional competitors, including over-the-top (OTT) sector is federally regulated and much more concentrated, application providers. constituting only 4% of all firms within the overall industry. Output within the Canadian ICT industry has continued • Consolidation pressures as margins on legacy services to grow. On a GDP basis, the industry has outgrown the decline, infrastructure costs increase, and global Canadian economy as a whole over the past decade, as competitors enter new markets.4 illustrated in the following graph.2 • Evolving communications services with a greater number of OTT offerings and ensuing exponential increases in data Real GDP: ICT Sector and Canadian Economy (Indexed Growth, 2007Q1 – 100) traffic (in particular, wireless data). • Growth in information technology (IT) services opportunities 120 (i.e. managed, cloud, and professional services). • Persistent and disruptive regulatory change. 115 The following diagram illustrates SaskTel’s overall position within the industry: 110

IC tor T M ec an 105 S u g fa lin c a CANADIAN tu s r le in o ICT INDUSTRY g 100 h S W e 31,400 Firms c T t o C GDP – $6.3 billion I r Employment = 555,978 95 R&D =$5.3 billion

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1 Industry Canada ICT Branch: Quarterly Monitor of the Canadian ICT Sector. Q3, 2014. 3 Source: IBM CXO survey, presented at IBM Compass session. 2 Industry Canada ICT Branch: Quarterly Monitor of the Canadian ICT Sector. Q3, 2014. 4 Capgemini: Communications Industry: On the Verge of Massive Consolidation, 2014, pg. 3. 120

SASKTEL 2015/16 ANNUAL REPORT | 41 115

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95 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Communications Services Sector Outlook financial strain is weighing on their ability to spend more on The following table summarizes the top companies (by communications services. revenue) within the Canadian communications services sector. Despite the challenges in other segments, broadband Internet Top Companies, 2015 access services will continue to drive new growth. No matter Revenue ($ millions) how consumers shuffle their communications services BCE 21,514 spending, it will be difficult for them to reduce spending on Rogers Communications 13,414 broadband.7 As consumers increase their consumption of Telus 12,502 online content, the importance of fast, reliable broadband will Shaw Communications 5,488 be reinforced. Videotron 2,998 COGECO 2,043 Sector Breakdown, 2014 SaskTel 1,258 MTS 1,010 Data and Private Line 8.7%

Sources: Published corporate annual financial reports. Internet 16.2% From a GDP perspective, the pace of growth within the Wireless 40.1% communications services sector has slowed considerably over the past several years. In 2010, the rate of growth was Broadcasting Distribution 16.6% over 4% while in 2015 the forecast was a mere 0.4%.5 Several key factors have contributed to this slow level of growth6: Wireline Voice 18.4% • The negative impact of the decline in wireline phone (and Source: CRTC, Communications Monitoring Report, 2015. associated services) usage across Canada as a result of “cord cutting” and “cord shaving.” The table below summarizes past performance and the • Significant disruption to paid-TV services as the viewing Conference Board of Canada’s forecast on key indicators habits of Canadians shifts toward online content. for the communications services sector. As can be seen, • The maturing of the wireless segment resulting in slower growth in this sector out to 2020 is predicted to be flat at growth going forward causing difficulty for wireless carriers approximately 1.7% per annum. Despite the weak predicted to grow their customer bases. output growth, there are positive signs in the forecast8: • Canadian households’ record-high indebtedness and • Overall profitability for the sector should improve during 2018 and remain healthy through 2020.

Communications Services Sector – Key Indicators (2012 to 2020f) 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 31,453 31,721 31,927 32,061 32,496 33,061 33,656 34,243 34,842 Real GDP (2007 $ millions) 1.4 0.9 0.7 0.4 1.4 1.7 1.8 1.7 1.8 163 144 145 138 143 144 145 147 149 Employment (000s) 4.1 -11.9 1.0 -4.6 3.5 0.4 1.1 1.1 1.1 102 105 110 114 116 118 120 122 124 Price index (2007 – 100) 0.7 2.7 4.9 3.9 1.7 1.8 1.8 1.7 1.7 59,732 60,972 63,510 65,130 67,837 70,108 72,639 75,177 77,787 Revenues ($ millions) 4.2 2.1 4.2 2.6 4.2 3.3 3.6 3.5 3.5 51,326 53,416 55,544 57,280 59,907 62,038 64,253 66,428 68,740 Costs ($ millions) 3.0 4.1 4.0 3.1 4.6 3.6 3.6 3.4 3.5 8,407 7,556 7,966 7,850 7,931 8,070 8,386 8,748 9,047 Profits ($ millions) 12.6 -10.1 5.4 -1.5 1.0 1.8 3.9 4.3 3.4 Profit margin (per cent) 14 12 13 12 12 12 12 12 12

f = forecast; Italics indicate percentage change. Sources: The Conference Board of Canada; Statistics Canada.

5 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian 7 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian Industrial Outlook, Autumn 2015, pg. 2. Industrial Outlook, Autumn 2015, pg. 2. 6 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian 8 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian Industrial Outlook, Autumn 2015, pg. 2. Industrial Outlook, Autumn 2015, pg. 1.

42 | MANAGEMENT’S DISCUSSION AND ANALYSIS • Profit margin is expected to remain healthy at 12% out Demand for wireless data continues to grow at a steady rate. to 2020, well above the overall Canadian industry In 2015, global mobile data traffic grew 74% to 3.7 exabytes average of 10%. (1 EB = 1 billion Gb) per month, up from 2.1 EB at the end of 2014. North American traffic grew by 55% in 2015. It is WIRELESS expected that global traffic will reach 30.6 EB by 2020. While wireless continues to be the largest segment within This astronomical growth is being driven largely by video the communications services sector (40.1%), it is no longer content. Mobile video traffic accounted for 55% of total the growth engine that it once was. Wireless services are mobile data traffic in 2015. Cisco estimates that three-fourths maturing, resulting in slowing revenue growth due to market of the world’s mobile data traffic will be video by 2020.10 saturation. An estimated 82% market penetration rate in Rapid adoption of Internet of Things (IoT) technologies Canada is resulting in the bulk of carriers’ activity being will also contribute to increased wireless data growth as focused on winning back subscribers. Average Revenue Per sensors become more embedded in everyday objects from Unit (ARPU) growth is also decelerating but is expected to wearables to cars to smart homes. remain positive through 2016. Growth in Mobile Video (Exabytes per month) Postpaid subscriber growth has entered what is being referred to as a “new normal” phase of lower growth. Rate 35 53% CAGR 2015–2020 increases from most carriers has exacerbated this slowdown. It should be noted though that these rate increases have not 30 been equitably applied across all markets, with lower regional pricing still being utilized by the Big Three (Rogers, Bell, Telus) 25 in Saskatchewan, Manitoba, and Quebec. Despite the overall slowdown in subscriber growth, there continues to be a 20 shift to wireless-only households as consumers continue 15 to rationalize their spending on communications services through cord cutting. The following graph demonstrates the 10 inflection point that occurred in 2013 when wireless-only 9 households surpassed wireline-only households : 5 Wireless-Only Households Surpassed Wireline-Only Households 0 (Wireline and Mobile Wireless Subscribers per 100 Households) 2015 2016 2017 2018 2019 2020 ■ Mobile Video (55%, 75%) ■ Mobile Audio (8%, 6%) 50 ■ Mobile Web/Data/VoIP (36%, 17%) ■ Mobile File Sharing (1%, 2%)

Figures in parentheses refer to 2015 and 2020 traffic share. 40 Source: Cisco VNI Mobile 2016.

30 Over the next four years, it is expected that the majority of mobile devices will be connected to 3G and 4G networks globally. This will come at the expense of legacy 2G 20 technologies as carriers and customers transition to faster 0 5 10 15 20 25 30 HSPA and LTE technology. This will start setting the stage for 10 a longer-term transition to new 5G technologies.

0 2002 03 04 05 06 07 08 09 10 11 12 13 Wireline only Wireless only

Source: CRTC, Communications Monitoring Report 2015.

9 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian 10 Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2015–2020, Industrial Outlook, Autumn, 2015, pg. 6. Feb. 16, 2016, pg. 26.

SASKTEL 2015/16 ANNUAL REPORT | 43 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Advantages of 5G services still have a long way to go before they overtake wireless services but the trend has been established. It is 100 Mbps expected that Internet services revenues will eventually whenever needed >10 Gbps overtake those from traditional wireline voice services and peak data rates broadcasting distribution services.13 This growth in demand 10,000 x more traffic for faster broadband Internet access is one of the key drivers behind the continued implementation of SaskTel’s Fibre to the 10–100 Premises (FTTP) program. x more devices <1 ms Growth in Internet Revenues Now Outpacing M2M radio latency Wireless Revenues (year-over-year change in revenues, per cent) ultra low cost

10 years 10 on battery Ultra reliability 8 Source: Nokia

The Asia-Pacific region is expected to lead the early 6 deployment of 5G by showcasing its capabilities at the upcoming 2018 Winter and 2020 Summer Olympics in Korea

and Japan respectively. SaskTel is at the beginning stages 4 of its 5G journey with assessments and long-term plans currently under development. 2 WIRELINE Although traditional wireline services continue to provide positive margins to most carriers, changes to how consumers 0 2009 2010 2011 2012 2013 2014 use communications services continue to contribute to the decline of this segment. Cord cutters, cord shavers, and ■ Internet ■ Wireless cord nevers have shifted their consumption to wireless and over-the-top (OTT) services. Wireline voice services now only Source: CRTC, Communications Monitoring Report 2015 represent 18.4% of the communications services sector in Canada. Revenues from wireline services have fallen almost Younger consumers continue to prefer fast and reliable 40% in the past 10 years, from $15 billion to $9.2 billion. broadband Internet to traditional paid-TV services in order to access online content (i.e. Netflix, YouTube, Apple TV, It should be noted that, although wireline will continue to etc…). Because of this, along with the introduction of new decline in overall importance, it does not just represent doom technologies (such as 4KTV) and an unstable regulatory and gloom. Wireline still accounts for a significant share of framework, the landscape for Canadian paid-TV services revenues within the communications services sector at close will continue to evolve rapidly. The increasing penetration 11 to 20%. In addition, Internet services are a significant growth of TV substitutes is changing not only consumer purchasing area that consumers are becoming more and more reliant patterns but also reducing the available household on. Broadband Internet is now nearly as indispensable as entertainment dollars that would normally be spent on the telephone once was. In both 2013 and 2014, a turning traditional paid-TV services. point occurred where Internet services revenues grew more strongly than revenues from wireless services.12 At 16% of Despite the growth in popularity of IPTV (Internet Protocol communications services sector revenues, fixed Internet Television) services offered by telecom firms (largely at the expense of cableco services), paid-TV subscription rates have

11 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian Industrial Outlook, Autumn 2015, pg. 6. 12 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian 13 Conference Board of Canada: Canada’s Telecommunications Industry, Canadian Industrial Outlook, Autumn 2015, pg. 8. Industrial Outlook, Autumn 2015, pg. 8.

44 | MANAGEMENT’S DISCUSSION AND ANALYSIS been declining since 2012. This trend will continue, with SDN is one of the most disruptive evolutions to networking Canadians spending more time viewing content online at in decades.15 This combination of new technologies and the expense of traditional TV.14 With the growing number of product offerings is an area where incumbent firms can add households cutting the cord or never actually signing up for value given that they can deliver both sophisticated networks paid-TV services, there is very little growth to be expected in and IT-based services. This will result in a major shift in the the overall TV customer base. technologies deployed and revenues earned.16

TV ARPU (Q1/10 – Q3/15, $) The Telco Revenue and Technology Mix will Shift Fast

80 XDSL Service delivery platform Fiber 75 ISDN Ethernet PSTN IP virtual private x25 networks 70 Frame relay SDN SaaS 5G 4G LTE 65 Telematics Unified-communications-aaS 60 Managed workplace Voice Security-aaS 55 Remote diagnostics Security Metering 50 Ambient assisted living Desktop management 45 Home management 40 ISDN video

2012 2020 Q /  Q/  Q/  Q/  Q / Q/ Q/ Q/ Q /  Q/  Q/  Q/  Q /  Q/  Q/  Q/  Q /  Q/  Q/  Q/  Q /  Q/  Q/  ■ OSS and BSS ■ Legacy Infrastructure Bell Rogers Cable Videotron ■ Next-generation ■ Cloud Portfolio Network Infrastructure Bell Aliant MTS ■ Legacy Portfolio Source: Forrester report “Telcos As Cloud Rainmakers.” Source: Canaccord Genuity estimates, company records. This opportunity for growth is tempered, though, by the MANAGED & EMERGING SERVICES extensive amount of competition within this space coupled An area of growth that has the potential to offset declining with the fact that it is an unregulated part of the industry. revenues and margins in legacy communications Competitors include not just other incumbent carriers but services is in managed and emerging services targeted also non-traditional rivals such as IT consultants (IBM, ISM, at business customers. Convergence between traditional Fujitsu), equipment vendors and partners (Cisco, Avaya), communications technology and information technology and OTT application providers. All of these players are due to technological changes is resulting in the development seeking new revenues and market share and the resulting and adoption of innovative new services that are starting to competition is intense. This intensifying competition is gain acceptance in the market. one of the primary drivers behind the need for business model, operational, and product-line transformation Increasing demand from businesses for managed networks, among traditional carriers such as SaskTel. Achieving this data centres, cloud services, unified communications and transformation and successfully delivering managed and collaboration, managed security, and professional services emerging services is therefore vital to traditional carriers in has created opportunities for incumbent carriers like SaskTel order to avoid being marginalized as little more than network to develop new product offerings that complement our infrastructure providers.17 intelligent broadband network. This is being reinforced through developments in Software Defined Networks (SDN) and Network Function Virtualization (NFV) that increase the importance of software in network design and operation. 15 Forrester: Emerging Customer Demand for Networking and Communications, Feb. 2016, pg. 62. 16 Forrester: Emerging Customer Demand for Networking and Communications, Feb. 2016, pg. 27. 14 Conference Board of Canada: Canada’s Telecommunications Industry: Industrial 17 IDC: IDC Predictions 2015: Accelerating Innovation—and Growth—on the 3rd Platform, Outlook, Autumn 2015, pg. 1. Dec. 2014.

SASKTEL 2015/16 ANNUAL REPORT | 45 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Regulatory Environment • The CRTC completed its review on the framework for In 2015, the CRTC announced several significant regulatory wholesale access to wireline services and associated decisions that have an impact on SaskTel: policies, including Fibre to the Premises (FTTP). One of the • Following a comprehensive review of the wholesale major determinations was that ILECs begin implementing wireless market, the CRTC determined that wholesale disaggregated wholesale high-speed access services (i.e. roaming provided by Bell Mobility, Rogers, and TELUS competitor self-supply the transport to get to each service are essential and directed only those three carriers to central office where they have customers) over both provide wholesale roaming to Canadian wireless carriers fibre and copper. This must be implemented in phases, at a regulated, incremental cost-based price. At the most immediately in Ontario and Quebec, and in other recommendation of the CRTC, the Governor in Council areas only when/if demand appears. While SaskTel was repealed sections in the Telecommunications Act that pleased that the CRTC’s decision did not require us to capped the amount SaskTel and other wireless service provide wholesale high-speed access services over our providers could charge competitors to roam on their FTTP facilities on an aggregated basis, in principle we were networks, and permitted SaskTel and wireless service disappointed with a mandated requirement to provide providers to return to market forces in the offering and competitors access to our fibre facilities. SaskTel has provision of all other wholesale roaming. This meant supported Bell Canada’s appeal to the federal government SaskTel no longer had to follow mandated rates. We were to overturn the CRTC’s decision. pleased that the CRTC understood the unique market In 2016, SaskTel will continue to participate in the CRTC’s position of the regional carriers as opposed to the Big proceeding on the Basic Service Objective and review of Three and did not impose additional roaming regulations which services (e.g. voice, broadband) are required by all on the regional carriers. Canadians to fully participate in the digital economy. The • The Let’s Talk TV decisions focused on offering consumers CRTC is also reviewing whether there should be any changes more choice and flexibility by requiring TV distributors to to the current voice subsidy regime that provides a subsidy to offer a smaller entry-level basic TV package capped at ILECs when the Commission-approved rate charged for local $25, and other discretionary channels on a pick-and-pay voice service in high-cost serving areas does not recover the (standalone) basis. SaskTel already offers many channels associated costs of providing that service. We remain very on its maxTV service on a standalone basis and is in the active in this proceeding to present our position, as the voice process of making other changes to comply with the subsidy regime is a valuable source of funding to SaskTel for CRTC’s decisions. The CRTC also introduced a Wholesale providing voice service to customers in many rural locations. Code, which prohibits certain commercially unreasonable terms and rates in content agreements. We viewed the Wholesale Code as a positive regulatory tool in providing some level of assistance in TV content negotiations with large media companies and U.S.-based services.

46 | MANAGEMENT’S DISCUSSION AND ANALYSIS RISK MANAGEMENT SaskTel’s Risk Management Group, under the direction of the Chief Financial Officer, manages the process of All businesses are subject to uncertainty and risk that may identifying, evaluating and reporting both key strategic affect their success in achieving strategic objectives. SaskTel risks and core business risks. The group works in concert strives to balance risk exposures with ensuring alignment with executive members, director primes (subject-matter to business strategies, objectives and risk tolerance. The experts), and other key personnel as required to conduct ability to identify and respond to key risks resides in SaskTel’s corporate risk assessments. Once SaskTel’s key risks are Governance, Risk and Compliance (GRC) Framework, which identified, they are evaluated using the Corporate Risk takes an enterprise-wide approach and ensures alignment Matrix, looking at likelihood and consequence of both between Strategic Planning, Risk Management, Operations inherent and residual risk. and Internal Audit. Complementing these assessments are the ongoing activities While SaskTel believes all employees are risk managers, and plans throughout SaskTel to mitigate and control risks, as SaskTel’s Board of Directors, together with senior well as the corporate insurance program and other methods management, is ultimately responsible for risk management to transfer risk where appropriate. All reported risks include at SaskTel. The process used to manage risk is depicted in the a risk statement, inherent and residual risk ratings based on framework below. likelihood and consequence, key mitigation and control activities that are either in place or planned with primes and timing assigned, and an assessment of mitigation and control effectiveness. Results are reviewed by SaskTel’s Executive and Board of Directors. Crown Investments Corporation of Saskatchewan receives a copy of these reviews. A E Internal Audit uses an industry standard approach to audit the effectiveness of governance, risk management and control processes. They provide assurances as to the appropriateness GOVERNANCE and operating effectiveness of the risk mitigation process. Key strategic and core business risks that could have a material effect on SaskTel’s business are listed below, including the mitigation activities to address these risks. Additional risks and uncertainties deemed to be lower risk, or risks not known at this time, may also have a material effect on SaskTel’s business.

R Strategic Risks Strategic risks are those that may impact SaskTel’s ability to achieve the goals and targets outlined in its Strategic Plan. Realization of one or more of these risks may require SaskTel Governance is provided by SaskTel’s Board of Directors, Audit to modify its strategic direction. and Risk Committee, and Executive. SaskTel’s risk appetite is determined through definition and approval of SaskTel’s Corporate Risk Matrix.

SASKTEL 2015/16 ANNUAL REPORT | 47 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

CUSTOMER SaskTel will differentiate itself from the competition by delivering an outstanding customer experience. This will be achieved while maintaining a balance between customer needs and SaskTel’s profitability. Risks associated with achieving this strategy include the following:

Systems Risk Mitigation activities Continuous product transformation drives the need for greater • Development of a future-state systems architecture roadmap speed and agility throughout our industry. System transformation outlining required systems projects. can be a lengthy and costly process to integrate and support • Implementation of a new wireless billing system with plans to legacy systems. Rapid implementation is required to maintain a further leverage its functionality. competitive market position. • Initiatives are underway or planned to support network infrastructure builds and enhance customer self-management. • Interim processes will provide mitigation until more permanent solutions can be implemented.

Business Intelligence Risk Mitigation activities Business Intelligence (BI) presents opportunities to utilize data • Interim solutions are being utilized to access existing information. analysis for improved forecasting, revenue generation, customer • SaskTel is building master data management foundational retention and operational cost management. Improvements elements and a sequence of initiatives that will populate our to SaskTel’s BI capabilities are critical to achieving competitive data warehouse. advantage by proactively offering customer-targeted services, providing personalized service, and making more informed business decisions.

BROADBAND Broadband is quickly becoming the customer’s primary access service in the home and business. SaskTel’s ability to increase broadband penetration is reliant on having a superior infrastructure to be used for the delivery of new services across networks and devices. Risks associated with achieving this strategy include the following:

Broadband Access Services Risk Mitigation activities Competitive broadband service offerings for both wireline and • SaskTel maintains competitiveness in the broadband market wireless networks provide customers with required speed and through a strong commitment to customer service as well as availability. Without a successful broadband product offering, continuous monitoring of competitive pricing and products, opportunities for complementary service offerings may be limited. making timely adjustments to SaskTel’s offerings when required. • Further mitigation plans are in place to evolve service offerings, increase fibre subscriptions and improve self-serve capabilities and network infrastructure.

Wireless Data Consumption Risk Mitigation activities Customer wireless data usage continues to grow rapidly. • SaskTel monitors the network to resolve issues and manage Proactively managing potential network congestion problems is congestion, adding more capacity as needed. critical to avoiding a compromised customer data experience. • To manage growth in data consumption, new price plans have been introduced, customers have access to their data usage information, and network policy controls are in place. • Wi-Fi hot spots (SaskTel Select Wi-Fi) assist to offload traffic to the wireline network. • Additional spectrum was purchased and SaskTel will continue deployment of LTE technology.

48 | MANAGEMENT’S DISCUSSION AND ANALYSIS ICT TRANSFORMATION The ICT industry continues to grow and evolve with the convergence of communications technology and information technology. SaskTel is looking to accelerate its transformation to an ICT company in order to take advantage of market opportunities to replace declining revenues from legacy voice services. Risks associated with achieving this strategy include the following:

New Products and Services Risk Mitigation activities Continual technological changes within the ICT industry • Creation of a division focused exclusively on business solutions, are disrupting our traditional lines of business. This makes it along with increased corporate focus and strong governance, important for SaskTel to expand beyond legacy communications helps to mitigate this risk. services. Diversification into new managed and emerging • Development of a product and service roadmap coupled with services focused on business customers is a means to achieve the launch of new key foundational services. this. Developing and launching these new services in an agile • Creation of a partnership approach that opens new channels to and timely manner using the most appropriate business models market and supports service offerings. is critical to success.

Operating Environment Risk Mitigation activities New approaches to sales, fulfillment, assurance and billing • Development of interim processes for new managed and (SFAB) systems and processes are required for new managed emerging services. and emerging services. Improving the operating and delivery • Implementation of a business optimization model for all business model for these new services (such as data centres, managed services (including managed and emerging) in order to enhance IT and cloud services) is essential to achieving customer the operating environment. satisfaction and competitive advantage.

Workforce Risk Mitigation activities Sustained technological and business model changes require • Corporate restructuring has better aligned our workforce to accompanying changes to workforce skills and knowledge. The provide more focus on the specific needs of the business and workforce must continually evolve to address technological consumer markets. transformation, aggressive competition and increasing customer • Workforce development includes targeted planning for each demands. Software, wireless, and data analytics skillsets present division, identification of corporate skill and training priorities and recruitment and retention challenges given that they are in high “at risk” positions, succession management, and creation of a demand and short supply. pipeline for internal and external talent for key positions.

LONG-TERM PROFITABILITY SaskTel requires a stronger focus around managing long-term profitability in the face of numerous competitive, regulatory, and technological challenges. As with any business, SaskTel must provide its shareholder with an appropriate return and, as such, there will be initiatives deployed throughout the company to improve operational excellence. Risks associated with achieving an appropriate financial return include many of the strategic risks identified previously as well as the following:

Regulatory Risk Mitigation activities The Federal Government and its agencies continue to engage • SaskTel proactively participates in current CRTC processes using in regulatory reforms that are disadvantageous to incumbents, a multifaceted approach to work with the regulator. We engage in particular regional operators such as SaskTel. These reforms with the CRTC in order to obtain the best possible result for often result in increased costs and complexity of our business. SaskTel’s customers and shareholder. Of particular concern is the CRTC’s review of the Basic Service Obligation (BSO) which has the potential to reduce the subsidy we receive for provision of services in higher-cost rural areas. The BSO may also be expanded to include broadband as a basic service.

SASKTEL 2015/16 ANNUAL REPORT | 49 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Core Business Risks The Core Business risks focus on SaskTel’s risks associated with the execution of SaskTel’s business functions. This includes Operational, Financial, Legal and Compliance risks.

OPERATIONAL RISKS The Operational risk review focuses on SaskTel’s risks associated with the execution of SaskTel’s business functions, such as business interruption, security, infrastructure, supply chain, change enablers, fulfillment and assurance. Key operational risks are discussed below:

Systems and Information Security Risk Mitigation activities Systems security involves the protection systems and networks • Completion of a business-level security threat and risk that are used to process, manage and store customer, assessment. employee, operational and competitive information. A strong • Development of a roadmap for our information security program security framework is necessary to maintain customer trust that and architecture that facilitates the management of these risks their data is safe. Securing information systems today is complex while enabling SaskTel to achieve its objectives. due to the rate of change in technology, the growth of Internet • Implementation of a multiyear Information Security Program that Protocol (IP) services, the regulatory environment, and the enhances security controls and addresses the risks identified via continued risks associated with conducting business in such a the risk assessment. rapidly changing environment.

Business Interruption Risk Mitigation activities SaskTel has a substantial investment in physical assets (property, • A stringent preventative maintenance program, regular plant and equipment) throughout the province. All of these inspections by independent loss prevention engineers, strict assets are subject to damage or destruction from natural procedures on housekeeping practices, and appropriate physical hazards, vandalism and other forms of accidental loss that could security controls reduce and prevent losses. result in reduced revenues, increased expenses and impairment • Major switching centres are designed to limit loss exposures of asset values. by utilizing departmentalization, zoned environmental systems, smoke barriers, automatic sprinklers, and very early warning fire detection systems. • A comprehensive insurance program is in place to transfer risk of physical loss and any resultant business interruption experienced. • Business continuity and disaster recovery plans are in place, which evolve through our Business Continuity Management (BCM) program.

Technology Risk Mitigation activities SaskTel’s extensive communications network and information • High levels of redundancy and other tactics are used to mitigate systems architecture has evolved to provide a variety of services these risks, including regular operational reviews, business ranging from traditional to cutting edge. Our confidence level continuity plans, stringent testing procedures for new software, in our network and systems is high. Given the complexity of the preventative maintenance programs and site hardening of infrastructure, the possibility of a hardware or software failure critical locations. impairing our ability to provide service cannot be ruled out.

50 | MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL RISKS Risks reviewed in this category include interest, foreign exchange, credit, financial misstatement, pension plan, investments, public reporting, revenue assurance, fraud and cash flow. No significant core business financial risks are reported at this time. The Notes to Consolidated Financial Statements, Note 21 – Financial instruments and related risk management, highlights some financial exposures and mitigations.

COMPLIANCE AND LEGAL RISKS The Compliance and Legal risk category focuses on SaskTel’s risks associated with our need to comply with laws and regulations. Risks reviewed in this category include contractual, professional, third party, statutory, environmental, governance, intellectual property, litigation, regulatory, and privacy. Litigation is SaskTel’s key compliance and legal risk and are described in more detail in Notes to Consolidated Financial Statements, Note 23 – Commitments and contingencies.

Litigation Risk Mitigation activities SaskTel, like all businesses, faces the risk of legal action. • SaskTel’s legal risk environment is reasonably stable and we Employees interact with thousands of people daily and our ensure that legal exposures are minimized. assets are numerous and visible. Various aspects of legal risk • Central to SaskTel’s legal risk mitigation is the expertise and exposure include contractual, professional, statutory, and active business involvement of the Corporate Counsel division, a third-party liability, which could negatively impact SaskTel’s corporate structure that uses separate legal entities (subsidiaries) results and reputation. to limit liability, a focus on contractual assignment of risk or limitation of liability, and sound operating procedures at the core of SaskTel’s business. • Our corporate insurance program provides a degree of financial protection from specific third-party legal liabilities. • At March 31, 2016, SaskTel is named in several major lawsuits. We believe we have strong defences in all cases.

SASKTEL 2015/16 ANNUAL REPORT | 51 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

OPERATING RESULTS FINANCIAL SUMMARY

CHANGE IN FISCAL YEAR END During the twelve months ended December 31, 2015, SaskTel’s Board of Directors approved a change in SaskTel’s year end from December 31 to March 31. SaskTel’s transition period is the fifteen months ended March 31, 2016. The comparative period is the twelve months ended December 31, 2014. The new financial year will align the Corporation with its sister Crown Corporations and with the Government of Saskatchewan. The explanations found within this MD&A will be comparing the twelve-month period ending December 31, 2015, with the twelve-month period ending December 31, 2014, unless otherwise stated.

Consolidated Net Income

3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Revenue $ 1,257.7 $ 1,231.0 $ 26.7 2.2 $ 316.7 $ 1,574.4 Other income 3.1 1.7 1.4 82.4 1.4 4.5 1,260.8 1,232.7 28.1 2.3 318.1 1,578.9

Expenses Goods and services purchased 571.3 574.7 (3.4) (0.6) 133.6 704.9 Salaries, wages and benefits 374.0 374.4 (0.4) (0.1) 100.8 474.8 Depreciation 169.2 166.2 3.0 1.8 42.2 211.4 Amortization 33.9 41.5 (7.6) (18.3) 9.7 43.6 Internal labour capitalized (21.8) (23.1) 1.3 (5.6) (5.5) (27.3) 1,126.6 1,133.7 (7.1) (0.6) 280.8 1,407.4

Results from operating activities 134.2 99.0 35.2 35.6 37.3 171.5

Net finance expense 36.5 22.6 13.9 61.5 8.3 44.8

Net income $ 97.7 $ 76.4 $ 21.3 27.9 $ 29.0 $ 126.7

Other comprehensive income (loss) 47.3 (57.3) 104.6 nmf 1 (53.2) (5.9)

Total comprehensive income $ 145.0 $ 19.1 $ 125.9 nmf 1 $ (24.2) $ 120.8

1 nmf – no meaningful figure

52 | MANAGEMENT’S DISCUSSION AND ANALYSIS Consolidated Revenues 3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016 Wireless services $ 492.4 $ 482.3 $ 10.1 2.1 $ 125.8 $ 618.2 maxTV, Internet and data services 323.6 305.2 18.4 6.0 82.4 406.0 Local and enhanced services 234.2 242.7 (8.5) (3.5) 56.0 290.2 Long distance services 47.8 53.2 (5.4) (10.2) 11.1 58.9 Equipment 65.8 54.9 10.9 19.9 15.5 81.3 Advertising services 40.5 41.9 (1.4) (3.3) 9.8 50.3 Security monitoring services 22.8 22.9 (0.1) (0.4) 5.7 28.5 International software and consulting services 7.4 6.2 1.2 19.4 1.6 9.0 Other services 23.2 21.7 1.5 6.9 8.8 32.0 $ 1,257.7 $ 1,231.0 $ 26.7 2.2 $ 316.7 $ 1,574.4

SASKTEL 2015/16 ANNUAL REPORT | 53 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

NET INCOME

Net Income ($ Millions) s Revenues grew $26.7 million (2.2%) mainly due to increases in maxTV, Internet and data revenues; increased 150 equipment sales, and continued wireless growth. Revenue growth is being offset by further decreases to legacy services such as local access, enhanced services $29.0 $126.7 and long distance. s Goods and services purchased decreased $3.4 million $4.6 $13.9 $3.4 $0.9 (0.6%) largely due to management’s focus on controlled $26.7 $1.4 100 spending, offset by increased direct costs incurred to generate revenue increases. t Net salaries, wages, and benefits increased by $0.9 million $76.4 primarily due to economic increases and a reduction in the amount of internal labour capitalized to SaskTel projects.

50 s Depreciation and amortization decreased by $4.6 million as a result of increasing the useful lives of certain 2014

2015/16 software assets while reducing the useful lives of Revenue Net Salaries Q5 2015/16 select network assets. Other Income Dep’n & Amort t Net Finance Costs Net Finance Net finance expenses increased $13.9 million primarily Goods and Services from sinking fund market fluctuations and increased s Net income for the twelve months ending December 31, interest costs on financial and pension liabilities. 2015, was $97.7 million, up $21.3 million from the same s Net income for the three months ending March 31, 2016, period in 2014. Net income increased through revenue was $29.0 million resulting in a fifteen-month net income growth of 2.2% and a total expense reduction of 0.6%. of $126.7 million. N A

Net Income ($ Millions) Net income was declining over the past few years due to 50 100 150 a number of factors in the industry outside the control of

2011 $154.0*† the Corporation. In fiscal 2015/16, SaskTel responded to these challenges by continuing with its cost containment 2012 $106.3† strategy, optimizing on its legacy services, and introducing 2013 $90.7 new competitive services into the market. Strong cost management coupled with continued revenue growth in key 2014 $76.4 business segments, including wireless, maxTV, Internet, data, 2015/16 $97.7 $29.0 equipment, and new and emerging products and services,

2015 Budget $76.8 resulted in SaskTel exceeding its budget by $20.9 million. SaskTel continues to invest heavily in infrastructure in order 2016/17 Budget $104.2 to position itself as the leading facilities-based digital service provider and enabler to the people and businesses of ■ Net Income – 12 months ended December Saskatchewan. This investment is being completed to both ■ Net Income – 3 months ended March 2016 facilitate the increased demand for data consumption, and

* Amounts do not represent retrospective adoption of IAS 19 defined benefits. realize cost savings through operational efficiencies. SaskTel is † Amounts do not represent retrospective adoption of change in accounting beginning to see these efficiencies in its 2015/16 net income. policy for directory revenue recognition.

54 | MANAGEMENT’S DISCUSSION AND ANALYSIS Number of Accesses

50.0 112.5 175.0 Return on equity for fiscal 2015/16 is based on fifteen months of net income and therefore is not comparable to prior periods. Factors impacting the comparable twelve-month return on equity are discussed below.

RETURN ON EQUITY

Return on Equity (Percentage) s Return on equity increased to 12.7% in 2015, up 2.2% from 2014.

2011 24.4%*† s Net income increased $21.3 million. t Dividends declared decreased $23.3 million. 2012 19.0%† s Average accumulated other comprehensive losses 2013 14.0% increased by $5.0 million as a result of net actuarial losses 2014 10.5% on SaskTel’s defined benefit pension plan.

2015/16 12.7% 4.1%

2015 Budget 10.2%

2016/17 Budget 11.8%

Equity for the purpose of calculating return on equity is defined as the sum ■ Return on Equity – 12 months ended December of equity advances, retained earnings, and average accumulated other ■ Return on Equity – 3 months ended March 2016 comprehensive income (loss).

* Amounts do not represent retrospective adoption of IAS 19 defined benefits. † Amounts do not represent retrospective adoption of change in accounting policy for directory revenue recognition.

Number of Accesses

0.0 13.5 27.0

SASKTEL 2015/16 ANNUAL REPORT | 55 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

REVENUES

Revenues ($ Millions) s Wireless revenues increased by $10.1 million (2.1%), however, the wireless market is becoming saturated and 1,590 as a result wireless growth is no longer a result of an $1,574.4 $316.7 exponential increase in access, but instead primarily due 1,540 to increased ARPU. 1,490 s maxTV, Internet, and data posted strong revenue growth of $18.4 million (6.0%) year over year. There has been 1,290 a resurgence of access growth and increased ARPU as $18.4 $8.5 $5.4 $10.9 $1.2 $10.1 1,240 $1,231.0 customers are beginning to take advantage of improved Internet and data speeds via SaskTel’s world-class, fibre- 1,190 based network.

2014 s In 2015, SaskTel realized a $10.9 million (19.9%) growth in Other 2015/16 Wireless equipment sales of both business grade communication Equipment Q5 2015/16

Long Distance Long systems and consumer wireless devices.

Local & Enhanced Local t Legacy wireline services such as local access, enhanced , Internet & Data maxTV services, and long distance saw revenue declines of s Revenues for the twelve months ending December $13.9 million (4.7%). These decreases are primarily due to 31, 2015, were $1,257.7 million, up $26.7 million (2.2%) continuation of wireless substitution, OTT replacement from the same period in 2014. SaskTel’s revenue growth service trends, and little to no organicN growth as a result has been relatively flat over the past couple of years as of “cord nevers.” A regulatory intervention, regional pricing, wireless market s Revenues for the three months ending March 31, 2016, saturation, and increasing competition are impacting1190 1240 1290 1340 1390was $316.71440 1490 million1540 resulting1590 in fifteen-month total revenue SaskTel’s opportunities to offset revenue declines from of $1,574.4 million. legacy wireline services.

SaskTel’s revenues are composed primarily of wireless (39.3%); maxTV, Internet, and data (25.8%); and local access, enhanced services, and long distance (22.1%). Legacy revenues continue to decline and there are indications that wireless accesses are approaching saturation. SaskTel is set to capture new revenue opportunities by increasing Internet bandwidth to customers through improvements to its network infrastructure including FTTP and LTE-TDD; and further expansion of wireline and wireless broadband to rural communities. In addition, SaskTel is poised to deliver IT-based managed and emerging services to the business market, including managed cloud and Tier III data centre services.

56 | MANAGEMENT’S DISCUSSION AND ANALYSIS 2015/16 Revenue Profile Revenue ($ Millions)

Other 2.0% Local & Enhanced 18.4% 2011 $1,125.8*† Advertising, Security and Software 5.6% 2012 $1,182.4†

2013 $1,205.7 Equipment 5.2% 2014 $1,231.0 maxTV, Internet Long Distance 3.7% 2015/16 $1,257.7 $316.7 and Data 25.8% $1,574.4M 2015 Budget $1,304.6 Wireless 39.3% 2016/17 Budget $1,287.4

■ Revenue – 12 months ended December ■ Revenue – 3 months ended March 2016

* Amounts do not represent retrospective adoption of IAS 19 defined benefits. † Amounts do not represent retrospective adoption of change in accounting policy for directory revenue recognition.

Wireless – Revenue & Accesses WIRELESS SERVICES Wireless revenues increased by $10.1 million (2.1%) from 700 630,000 2014. Steady growth in wireless has typically been a result of 600 increased accesses and ARPU. In 2015, the wireless market is Number of 125 620,000 Accesses showing signs of saturation and, as a result, increases in ARPU 500 are driving wireless revenue growth. ARPU increases are due 610,000 400 to customers migrating to price plans that offer more0 data 850 1700 and features that enable customers to use their device to its 300 LLONS 600,000 full potential on SaskTel’s LTE network. In addition, further 200 postpaid penetration of smart phones to 80% (2014 – 76%) 590,000 has contributed to wireless revenue growth. 100 1 52 1 2 2 5066 516 0 580,000 2011 2012 2013 2014 2015/16 2015 2016/17 Budget Budget

■ Revenue ($ millions) – 12 Months Ended December Revenue – LH ■ Revenue ($ millions) – 3 Months Ended March 2016 Accesses – RH ■ Total Accesses

620000.000000 SASKTEL 2015/16 ANNUAL REPORT | 57

583.333333

466.666667 606666.666667

350.000000

233.333333 593333.333333

116.666667

0.000000 580000.000000 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

maxTV, Internet and Data – Revenue & Accesses maxTV, INTERNET, AND DATA SERVICES maxTV, Internet, and data services revenues increased by 450 280,000 $18.4 million, mainly due to continued growth in average 400 revenue per customer and accesses in all three lines of 350 2 270,000 business. In addition SaskTel rolled out SaskTel’s Digital 300 Subscriber Line service to an additional six communities and

250 Advanced high speed to an additional twelve communities 260,000 in 2015/16 which also pushed ARPU’s higher. Internet 200

LLONS ARPU’s are increasing as customers are continuing to select 150 faster Internet and enhanced TV service packages over 250,000 100 SaskTel’s fibre-based service, infiNET, now with over 60,000 50 connections, as it is rolled out to their communities. 265 26 25 052 26 1 0 240,000 2011 2012 2013 2014 2015/16 2015 2016/17 Budget Budget

■ Revenue ($ millions) – 12 Months Ended December Revenue – LH ■ Revenue ($ millions) – 3 Months Ended March 2016 Accesses – RH ■ Total Accesses

Local & Enhanced – Revenue & Accesses LOCAL ACCESS AND ENHANCED SERVICES Local access and enhanced services decreased to 350 600,000 $234.2 million in 2015, down $8.5 million (3.5%) from 2014.

300 500,000 The decline is due to a 7.4% reduction in network accesses (2014 – 5.8%) that occurred during the year as customers 250 560 400,000 continued to replace their existing wireline and wireless 200 services solely with a wireless alternative, a trend that has 300,000 continued over the past five years. 150 LLONS 200,000 100

100,000 50 450 280000 266 2620 252 22 22 212 212 0 0 2011 2012 2013 2014 2015/16 2015 2016/17 275000 360 Budget Budget ■ Revenue ($ millions) – 12 Months Ended December Revenue – LH 270000 ■ Revenue ($ millions) – 3 Months Ended March 2016 Accesses – RH ■ Total Accesses 270 265000 260000 180 255000 250000 90 245000 0 240000

350 600000 58 | MANAGEMENT’S DISCUSSION AND ANALYSIS 500000 280 400000 210 300000 140 200000

70 100000

0 0 LD – Revenue & Minutes LONG DISTANCE SERVICES Long distance revenues have decreased $5.4 million (10.2%) 70 1,400 from 2014. The decrease is primarily due to loss of customers 60 1,200 to substitute services such as social media, wireless and VoIP, as well as customers moving to less expensive bundle plans. 50 111 1,000

40 800

30 600 LLONS

20 400

10 200 6 611 5 52 1 0 0 2011 2012 2013 2014 2015/16 2015 2016/17 Budget Budget

■ Revenue ($ millions) – 12 Months Ended December Revenue – LH ■ Revenue ($ millions) – 3 Months Ended March 2016 Minutes – RH ■ Total Minutes

Equipment Revenue ($ Millions) EQUIPMENT Equipment revenues have increased by $10.9 million from

2011 51 2014, due to increases in customer-premises equipment, professional services, and wireless device sales. SaskTel 2012 521 continues to offer its customers consultation, design, training, 2013 525 and implementation services to ensure the right solution for their business. 2014 5

2015/16 65 155

2015 Budget 5

2016/17 Budget 61 70 1400 ■ Equipment – 12 months ended December ■ Equipment –60 3 months ended March 2016 1200 Advertising Revenue ($ Millions) ADVERTISING SERVICES 50 Advertising services revenues decreased to $40.5 million1000 in

2011 $43.4† 2015, from $41.9 million in 2014, a decrease of $1.4 million (3.3%). These results continue to exceed the traditional 800 40 † 2012 $43.4 directory industry that has experienced significant financial 2013 30 $43.3 pressures and ongoing revenue declines since its peak in600 2008. SaskTel’s strategy is to maintain its industry-leading print 2014 $41.9 directory revenue retention through Nits mysask411 solutions 2015/16 20 $40.5 $9.8 (bundling of print and digital products)A and ability to prove400

2015 Budget $40.7 total leads and ROI to its customers, while continuing to 10 0.0 diversify47.5 with ongoing product95.0 and service development200 2016/17 Budget $38.2 including the launch of marketing services in 2015.

■ Advertising – 120 months ended December † Amounts do not represent retrospective adoption of change in accounting0 ■ Advertising – 3 months ended March 2016 policy for directory revenue recognition.

SASKTEL 2015/16 ANNUAL REPORT | 59

Number of Accesses

0.0 27.5 55.0 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Security Monitoring Revenue ($ Millions) SECURITY MONITORING SERVICES Security monitoring revenues stayed flat at $22.8 million in 2015. SaskTel continues to actively seek out business growth 2011 1 both organically through existing customers and externally 2012 1 through customer account acquisitions.

2013 20

2014 22

2015/16 22 5

2015 Budget 2

2016/17 Budget 2

■ Security – 12 months ended December ■ Security – 3 months ended March 2016

International Software Solutions INTERNATIONAL SOFTWARE AND CONSULTING SERVICES & Consulting Revenue ($ Millions) Software and consulting service revenues increased to $7.4 million in 2015, up $1.2 million from 2014, primarily due to 2011 116 higher sales of customized software and consulting services.

2012

2013 N 2014 62 A

2015/16 16 0 15 30 2015 Budget 6

2016/17 Budget 0

■ Software – 12 months ended December ■ Software – 3 months ended March 2016

Other Revenue ($ Millions) OTHER SERVICES Other services revenues increased to $23.2 million in 2015,

2011 6 up $1.5 million (6.9%) from 2014. The ICT industry continues to change quickly and SaskTel has managed to stay at the 2012 12 forefront of this change by launching new products and 2013 150 services and deploying them primarily through its state-of- the-art data centres and partnershipsN with external parties. 2014 21 A

2015/16 22

2015 Budget 60.0 6.5 13.0

2016/17 Budget 5

■ Other Services – 12 months ended December ■ Other Services – 3 months ended March 2016

60 | MANAGEMENT’S DISCUSSION AND ANALYSIS

0.0 37.5 75.0 OTHER INCOME

Other Income ($ Millions) Other income increased to $3.1 million for the twelve months ending December 31, 2015, up $1.4 million from the same period in 2014. SaskTel continues to manage government 2011 51 partnerships to assist in ensuring all Canadians have access 2012 10 to broadband services. The majority of existing government- 2013 12 funded programs have been completed, and the majority of the income recognized in 2015 is related to amortization of 2014 1 the fixed assets generated from program funding. 2015/16 1 1

2015 Budget 2

2016/17 Budget 22

■ Other Income – 12 months ended December ■ Other Income – 3 months ended March 2016

EXPENSES

Expenses ($ Millions) t Expenses for the twelve months ending December 31, 2015, fell $7.1 million (0.6%) to $1,126.6 million. 1,440 $280.8 $1,407.4 t Goods and services purchased decreased $3.4 million 1,400 (0.6%), largely due to management’s focus on controlled

1,360 spending, offset by increased directN costs incurred to generate revenue increases. A 1,200 s Net salaries, wages, and benefits increased $0.9 million 1,160 0.0 (0.3%),7.5 largely due to a reduction15.0 in the amount of internal $1,133.7 $3.4 $0.9 $3.0 $7.6 labour capitalized to SaskTel projects. 1,120 t Depreciation and amortization decreased by $4.6 million 1,080 as a result of increasing the useful lives of certain software assets while reducing the useful lives of select 2014

2015/16 network assets. Net Salaries Q5 2015/16 Amortization Depreciation s Expenses for the three months ending March 31, 2016,

Goods & Services were $280.8 million, resulting in fifteen-month expenses totalling $1,407.4 million.

10801116115211881224126012961332136814041440

SASKTEL 2015/16 ANNUAL REPORT | 61 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Goods & Services Purchased ($ Millions) GOODS AND SERVICES PURCHASED Goods and services purchased decreased to $571.3 million

2011 510 for the twelve-month period ending December 31, 2015, down $3.4 million (0.6%) from the same period in 2014. The 2012 551 decrease was largely due to SaskTel’s continued focus on 2013 56 cost management and further cost savings as a result of the mandatory roaming rate cap established by the CRTC 2014 5 on June 19, 2014. These savings were partially offset by 2015/16 51 16 increased direct costs attributable to growth in business-

2015 Budget 622 grade communication equipment sales and consumer wireless devices. The average number of devices sold and the 2016/17 Budget 50 cost per wireless device continues to increase despite signs of wireless market saturation since customers frequently ■ Goods & Services – 12 months ended December adopt and upgrade to the latest devices. ■ Goods & Services – 3 months ended March 2016

Net Salaries & Benefits($ Millions) SALARIES, WAGES, AND BENEFITS (NET OF INTERNALLY CAPITALIZED LABOUR) Net salaries, wages and benefits increased to $352.2 million, 2011 15 up $0.9 (0.3%) million from 2014. Economic increases, and 2012 2 a reduction in the amount of internal labour capitalized to

2013 16 SaskTel projects, were the leading causes.

2014 51

2015/16 522 5

2015 Budget 5 0 375 750

2016/17 Budget 11

■ Net Salaries & Benefits – 12 months ended December ■ Net Salaries & Benefits – 3 months ended March 2016

* Amounts do not represent retrospective adoption of IAS 19 defined benefits.

Depreciation & Amortization ($ Millions) DEPRECIATION AND AMORTIZATION Depreciation and amortization expenses decreased to

2011 162 $203.1 million in 2015, down $4.6 million from 2014, primarily due to extending the useful lives of certain software assets, 2012 1 partially offset by increased plant in service related to FTTP 2013 11 and wireless network projects.

2014 20

2015/16 201 51 0 250 500

2015 Budget 220

2016/17 Budget 206

■ Depreciation & Amortization – 12 months ended December ■ Depreciation & Amortization – 3 months ended March 2016

62 | MANAGEMENT’S DISCUSSION AND ANALYSIS

0 150 300 NET FINANCE EXPENSE

Net finance expense increased $13.9 million (61.5%) to $36.5 million during 2015. In 2015, the sinking funds incurred market losses of $3.9 million compared to gains of $8.6 million in 2014. The remaining increases were due to increased interest costs on the defined benefit liability (see Note 18) and long-term debt. For more information see the Notes to the Consolidated Financial Statements – Note 4 – Net finance expense. 3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Net Finance Expense $ 36.5 $ 22.6 $ 13.9 61.5 $ 8.3 $ 44.8

OTHER COMPREHENSIVE LOSS

Other comprehensive income increased to $47.3 million, up $104.6 million from the loss recognized in 2014. The income resulted from changes in actuarial assumptions related to the liabilities of the defined benefit pension plan and the service recognition defined benefit plan (i.e. the discount rate used to calculate the liabilities of the plans). The assumptions are disclosed in Notes to the Consolidated Financial Statements – Note 18 – Employee benefits. 3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Other comprehensive income (loss) $ 47.3 $ (57.3) $ 104.6 nmf 1 $ (53.2) $ (5.9)

1 nmf – no meaningful figure

SASKTEL 2015/16 ANNUAL REPORT | 63 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

LIQUIDITY AND CAPITAL RESOURCES

CASH PROVIDED BY OPERATING ACTIVITIES

3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Operating activities $ 250.0 $ 271.0 $ (21.0) (7.7) $ 83.6 $ 333.6

Cash provided by operating activities for the twelve months ended December 31, 2015, was $250.0 million, down $21.0 million from the same period in 2014, primarily due to decreased working capital requirements, partially offset by increased income from operations adjusted for non-cash impact of sinking fund market fluctuations. In addition, cash provided by operating activities increased $83.6 million as a result of the additional three months in the current fiscal period.

CASH USED IN INVESTING ACTIVITIES

3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Investing activities $ 304.8 $ 279.1 $ 25.7 9.2 $ 65.6 $ 370.4

Cash used in investing activities was $304.8 million for the twelve months ended December 31, 2015, up $25.7 million from the same period in 2014, primarily due to the acquisition of additional spectrum licences. Total cash invested in property plant and equipment was $236.3 million, up $7.3 million from 2014. Spending on intangible assets increased $17.0 million to $69.6 million. Government funding decreased $1.4 million in 2014 to $1.1 million. In addition, cash used in investing activities for the three months ended March 31, 2016, was $65.6 million, bringing the total cash used in investing activities for the fifteen months ended March 31, 2016, to $370.4 million. Spending on property plant and equipment for the three-month period was $60.7 million, spending on intangible assets was $8.4 million and government funding was $3.5 million. Additional details of the 2016/17 capital program are included in the Capital Expenditures section.

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

3 months 15 months 12 months ended ended ended December 31, March 31, March 31, ($ millions) 2015 2014 Change % 2016 2016

Financing activities $ 59.4 $ (7.4) $ 66.8 nmf 1 $ (15.4) $ 44.0

1 nmf – no meaningful figure

Cash provided by financing activities was $59.4 million for the twelve months ended December 31, 2015, compared to cash used in financing activities of $7.4 million in 2014. This is primarily due to increased short-term borrowing and reduced dividend payments partially offset by reduced long-term borrowing compared to 2014. Financing activities for the three months ended March 31, 2016, resulted in a use of cash of $15.4 million consisting of net repayment of short-term borrowing of $5.3 million, sinking fund instalments of $2.6 million, and dividend payments of $7.5 million. SaskTel paid dividends of $30.0 million to CIC during the fifteen months ending March 31, 2016, a decrease of $53.7 million from the year ended December 31, 2014. During the last five fiscal years, SaskTel paid a total of $403.4 million in dividends while maintaining a debt ratio within industry standards.

64 | MANAGEMENT’S DISCUSSION AND ANALYSIS CAPITAL MANAGEMENT

Debt ratio March 31, December 31, December 31, ($ millions) 2016 2014 Change % 2015

Long-term debt $ 777.3 $ 776.8 $ 0.5 0.1 $ 777.2 Short-term debt 229.2 143.3 85.9 59.9 235.1 Less: Sinking funds 129.5 112.6 16.9 15.0 125.0 Cash and short-term investments 16.1 8.9 7.2 80.9 13.6 Net Debt 860.9 798.6 62.3 7.8 873.7 Equity 1 796.3 713.0 83.3 11.7 828.0 Capitalization $ 1,657.2 $ 1,511.6 $ 145.6 9.6 $ 1701.7 Debt Ratio 51.9% 52.8% (0.9) (1.7) 51.3%

1 Equity for the purposes of calculating the debt ratio is defined as equity advances, accumulated other comprehensive income (loss) and retained earnings at the end of the period.

SaskTel’s debt ratio decreased to 51.9% at March 31, 2016, down from 52.8% at December 31, 2014. The overall level of net debt increased $62.3 million, primarily to fund continued investment in property, plant and equipment as well as intangible assets. Equity increased $83.3 million after recording net income of $126.7 million, other comprehensive loss of $5.9 million, and declaring dividends of $37.5 million.

Debt Instruments SaskTel’s debt portfolio consists of short-term and long-term debt. Both are issued through, and guaranteed by, the Province of Saskatchewan. Short-term debt is issued at market rates in effect on the issue date. Long-term debt is at fixed interest rates.

The weighted average interest rate on SaskTel’s fixed-rate debt was approximately 5.02% at March 31, 2016, and December 31, 2014. The weighted average interest rate of the short-term debt outstanding at March 31, 2016, was 0.63% and 1.02% at December 31, 2014.

The interest rate on SaskTel’s debt depends on the credit rating of the Province of Saskatchewan, which issues debt on SaskTel’s behalf. The following table lists the credit ratings of the Province at March 31, 2016: S&P DBRS Moody’s

AAA (negative Long-term debt AA+ Aaa outlook) Short-term liabilities A-1+ R-1 (high) Not Rated

Access to Capital The primary uses of cash in 2016/17 will be property, plant and equipment and intangible asset expenditures, growth initiatives, and dividend payments.

The 2016/17 plan assumes that funding of capital expenditures, growth initiatives and dividend payments will be initially from operations. Additional funding will be accessed through short-term notes and long-term debt issued through the Province of Saskatchewan.

Credit facilities consist of up to $500 million in combined lines of credit with financial institutions and advances from the Province of Saskatchewan. At March 31, 2016, SaskTel had accessed $229.2 million of these facilities.

Besides this credit facility, SaskTel has authority to issue up to $1.3 billion in combined short-term and long-term debt. At March 31, 2016, total outstanding debt was $1.0 billion compared to $0.9 billion at December 31, 2014.

SASKTEL 2015/16 ANNUAL REPORT | 65 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

CAPITAL EXPENDITURES Fibre to the Premises (2015/16 – $69.9 million) SaskTel operates the largest ICT network in Saskatchewan, Fibre to the Premises is a twelve-year program to upgrade ™ the result of investing in Saskatchewan for over 100 years. broadband facilities and bring infiNET , SaskTel’s new SaskTel invested an additional $378.0 million in capital Fibre Optic Network, right to our customers’ doors in expenditures during 2015/16 (2014 – $282.7 million) to Saskatchewan’s nine major centres: Saskatoon, Regina, improve our customer’s experience today and create Moose Jaw, Prince Albert, Weyburn, Estevan, Swift Current, opportunities to provide additional network enhancements Yorkton, and North Battleford. By turning down existing DSL and capabilities in the future. Of the $378.0 million, $301.2 infrastructure and replacing broadband facilities in these million (2014 – $230.0 million) was spent on property, plant cities, the fibre network will be capable of delivering speeds and equipment, including Fibre to the Premises (FTTP), of up to 260Mbps, high definition, and feature-rich media wireless networks (4G, LTE & LTE-TDD), and Access Demand, services to seven televisions simultaneously while reducing while the remaining $76.8 million (2014 – $52.6 million) was SaskTel’s need to visit the customer’s premises to activate or spent on intangible assets such as customer support systems change services.

and spectrum. Fibre to the Premises (Homes) Capital Expenditures 160,000

Product Development 2.2% Other 4.0% 140,000

Buildings & 120,000 Equipment 8.1% Wireline – Fibre 29.0% 100,000

IT Infrastructure 11.9% 80,000 $378.0M Wireline – Copper 60,000 8.6% Wireless 20.9% 40,000 Wireline – Other 15.3% 2 20,000 16 Capital Expenditures ($ Millions) 0 2012 2013 2014 2015/16 400,000 ■ Passed 350,000 ■ Connected

300,000 Access Demand (2015/16 – $49.3 million) Access Demand is an on-going program to add infrastructure 250,000 to new neighbourhoods and increase capacity in existing 200,000 neighbourhoods so customers can access all the services that SaskTel has to offer. Economic growth in Saskatchewan 160000 150,000 160000 has been strong for several years, and, as such, there has

100,000 been a continuous demand for new land developments in 140000 many128000 centres across the province. 50,000 120000 0 100000 2011 2012 2013 2014 2015/16 96000 ■ Wireline – Fibre ■ Wireline – Copper ■ Wireline – Other ■ Wireless 80000 ■ IT Infrastructure ■ Buildings & Equipment ■ Product Development ■ Other

66 | MANAGEMENT’S DISCUSSION AND ANALYSIS

0 50000 100000 150000 200000 250000 300000 350000 400000 4G, LTE & LTE-TDD (2015/16 – $36.6 million) The 4G, LTE and LTE-TDD wireless networks require ongoing investment as customers abandon older wireless technologies. SaskTel 4G LTE customers can reach download speeds of up to 150 Mbps. SaskTel’s LTE network currently covers 59% of Saskatchewan’s population, while SaskTel’s 4G network currently covers 98% of Saskatchewan’s population. These ongoing investments result in increased data speeds and improved coverage that positively impact customer experience and provide the speeds and capabilities to travel the Internet, watch and listen to multi-media content, and access cloud-based services on their smartphone devices without delay.

Other Network Improvements (2015/16 – $85.1 million) SaskTel has invested in other areas of its network to increase capacity and modernize key components so that it can meet the needs of Saskatchewan residents and businesses and continue to support the growing economy. These improvements include capacity improvements to our wireline and wireless networks; improvements to our rural transport infrastructure to accommodate rural growth of fixed and mobile voice, video and data services; and expansion of northern fibre facilities that will bring high-speed bandwidth services to northern residents and businesses.

AWS-1 Spectrum (2015/16 – $35.2 million) During July 2015, Industry Canada approved the spectrum licence transfer of 2 blocks of prime AWS-1 spectrum from WIND Mobile to SaskTel. SaskTel successfully deployed the prime AWS-1 spectrum and significantly increased the capacity and speed of its 4G LTE network in Regina, Saskatoon, Prince Albert, Moose Jaw, Yorkton, Swift Current, North Battleford, Estevan, and Weyburn. The new spectrum deployed will allow for an increase of 4G LTE speeds from the current maximum speed of up to 110 Mbps to 150 Mbps. Going from SaskTel’s previous 15 MHz wide LTE carrier to the current 20 MHz represents the maximum bandwidth possible on a LTE carrier. SaskTel continues to bid for and acquire wireless spectrum to ensure that it can meet the quality, capacity and speed of service required by our customers.

SASKTEL 2015/16 ANNUAL REPORT | 67 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

SIGNIFICANT ACCOUNTING POLICIES by recognizing differences in benefit obligations and plan performance in other comprehensive income in the period This section discusses key estimates and assumptions that the differences arise. management has made and how they affect the amounts reported in the financial statements and notes. The most significant assumption used to calculate the net employee benefit plan’s obligation is the discount rate. SaskTel’s consolidated financial statements are prepared according to International Financial Reporting Standards (IFRS). Discount rate Other significant accounting policies, not involving the same The discount rate is the interest rate used to determine the level of measurement uncertainty as those discussed in this present value of the future cash flows that SaskTel expects will section, are nevertheless important to an understanding of our be required to settle employee benefit obligations. It is usually financial statements. See Note 2 to the consolidated financial based on the yield of long-term, high-quality, corporate fixed statements for accounting policies applicable to the financial income investments with terms reflecting the profile of the statements as a whole, as well as specific notes for more plan members. information about the accounting principles SaskTel uses for each applicable account in preparing its financial statements. SaskTel determines the appropriate discount rate at the end These notes also describe key changes in accounting of every year. SaskTel’s discount rate was 3.6% at March standards, and how they affect our financial statements. 31, 2016, down 0.2 percentage points from 3.8% used in 2014. Changes in the discount rate could have an effect Key Accounting Estimates and Assumptions on SaskTel’s cash flows through an effect on the projected In preparing the consolidated financial statements, benefit obligation. A lower discount rate results in a higher management is required to make judgments, estimates obligation, which could at some point require additional and assumptions that affect the application of accounting contributions to the plan. policies and the reported amounts of assets, liabilities, income and expenses, and is required to constantly Allowances for Doubtful Accounts evaluate the judgments, estimates and assumptions used. SaskTel and its subsidiaries maintain allowances for losses Management bases these estimates and assumptions on expected to result from customers who do not make their past experience and other factors considered reasonable required payments. Estimates of the allowances are based under the circumstances. Because of the judgment and on the likelihood of collecting accounts receivable based on measurement uncertainty, actual results could differ. past experience, taking into account current and expected collection trends. If economic conditions or specific industry Employee defined benefit plans trends become worse than anticipated, the allowances SaskTel maintains defined benefit plans that provide pension, for doubtful accounts will be increased by recording an other retirement and post-employment benefits for additional expense. employees. Reported financial statement amounts relating to these benefits are determined using actuarial calculations Depreciation and Amortization that are based on several assumptions. Depreciation and amortization are estimates to allocate the cost of an asset over its estimated useful life on a systematic SaskTel’s actuary performs an actuarial valuation at least every and rational basis. Estimating the appropriate useful lives of three years to determine the actuarial present value of the assets requires significant judgment and is generally based accrued pension and other retirement benefits. The actuarial on past experience with similar assets, taking into account valuation uses management’s assumptions for the discount expected technological or other changes. If technological rate, expected long-term rate of return on plan assets, rate of changes happen more quickly or in a different way than compensation increase and expected average remaining lives anticipated, management may have to modify an asset’s of employees. Management believes these assumptions are estimated useful life. This could result in a change to appropriate; however, differences in actual results or changes depreciation or amortization expense in future periods, an in assumptions could affect employee benefit obligations impairment charge to reflect a write down in value of an and future net post-employment benefit plan costs. SaskTel asset, or reversal of a previously recorded impairment charge. accounts for differences between actual and assumed results

68 | MANAGEMENT’S DISCUSSION AND ANALYSIS Property, plant and equipment Intangible Assets Property, plant and equipment are amortized over their SaskTel records intangible assets at the most appropriate value estimated useful lives. These estimated useful lives are depending on the method of acquisition, cost for purchased reviewed annually. In addition, SaskTel reviews these assets and internally developed intangible assets, and fair value for for impairment as part of the relevant cash-generating intangible assets acquired in business combinations. Intangible unit (CGU) whenever events or changes in circumstances assets are tested for impairment as part of the relevant CGU indicate that the carrying amount of the CGU may not be when events or changes in circumstances indicate that their recoverable. An impairment loss is recognized on an asset carrying value may not be recoverable. Similar to impairment or CGU to be held and used when the carrying amount testing for property, plant and equipment, an impairment exceeds its estimated recoverable amount. The recoverable loss is recognized on an asset or CGU to be held and used amount of an asset or CGU is the greater of its value in when the carrying amount exceeds its estimated recoverable use and its fair value less costs to sell. Estimating the cash amount. The recoverable amount of an asset or CGU is the flows to determine estimated recoverable amounts requires greater of its value in use and its fair value less costs to sell. significant judgment and is generally based on current and Estimating the cash flows to determine estimated recoverable anticipated asset potential, including future technological amounts requires significant judgment and is generally based trends. Declines in future cash flow potential or significant on current and anticipated asset potential, including future unanticipated technology changes could impact the carrying technological trends. Declines in future cash flow potential or value and potential impairment. In addition, SaskTel cannot significant unanticipated technology changes could impact predict whether an event that could trigger an impairment the carrying value and potential impairment. In addition, will occur, when it will occur, or how it will affect the asset SaskTel cannot predict whether an event that triggers an values reported. impairment will occur, when it will occur or how it will affect the asset values reported. Goodwill SaskTel management does not amortize goodwill but tests it Fair Value of Financial Instruments for impairment as part of the relevant CGU annually, or more Certain financial instruments, such as sinking funds and frequently if events or changes in circumstances indicate certain elements of borrowings, are carried in the statements that the CGU might be impaired. When the recoverable of financial position at fair value, with changes in fair value amount of a CGU exceeds its carrying amount, goodwill reflected in the income statement and the statement of of the CGU is considered not to be impaired. When the comprehensive income. Fair values are estimated by reference carrying amount of a CGU exceeds its recoverable amount, to published price quotations or by using other valuation an impairment loss is first applied to reduce the carrying techniques that may include inputs that are not based on amount of goodwill allocated to the CGU. Again, estimating observable market data, such as discounted cash flows. the cash flows to determine the recoverable amount of the relevant CGU requires significant judgment and is generally Contingencies based on current and anticipated asset potential, including SaskTel becomes involved in various litigation and regulatory future technological trends, but they include uncertainties matters as a regular part of its business. Pending litigation, that cannot be controlled. As a result, the amounts reported regulatory initiatives or regulatory proceedings represent for these items could change if assumptions are different or if potential financial loss to SaskTel. SaskTel will accrue a conditions vary in the future. SaskTel cannot predict whether potential loss if it is probable and it can reasonably be an event that triggers impairment will occur, when it will estimated. This decision is based on information available occur, or how it will affect the asset values reported. at the time.

SASKTEL 2015/16 ANNUAL REPORT | 69 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

FIVE YEAR RECORD OF SERVICE Consolidated Statement of Income and Other Comprehensive Income 12 months ended December 31, 15 months ended ($ millions) March 31, 2016 2014 2013 2012 † 2011*† Revenue $ 1,574.4 $ 1,231.0 $ 1,205.7 $ 1,182.4 $ 1,125.8 Other income 4.5 1.7 14.2 10.7 5.1 1,578.9 1,232.7 1,219.9 1,193.1 1,130.9

Expenses Goods and services purchased 704.9 574.7 567.3 553.1 519.0 Salaries, wages and benefits 474.8 374.4 364.4 344.0 331.9 Depreciation 211.4 166.2 155.5 153.6 142.3 Amortization 43.6 41.5 27.6 24.2 20.4 Internal labour capitalized (27.3) (23.1) (22.8) (20.6) (16.1) 1,407.4 1,133.7 1,092.0 1,054.3 997.5

Results from operating activities 171.5 99.0 127.9 138.8 133.4 Net finance expense (44.8) (22.6) (37.2) (32.5) (10.2)

Income from continuing operations 126.7 76.4 90.7 106.3 123.2

Net income from discontinued operations – – – – 30.8 Net income $ 126.7 $ 76.4 $ 90.7 $ 106.3 $ 154.0 Other comprehensive income (loss) (5.9) (57.3) 190.6 (21.6) (135.9) Total comprehensive income $ 120.8 $ 19.1 $ 281.3 $ 84.7 $ 18.1

Consolidated Statement of Financial Position As at March 31, 2016 December 31, ($ millions) 2014 2013 2012 † 2011*† Current assets $ 218.9 $ 167.2 $ 181.2 $ 148.6 $ 145.6 Property, plant and equipment 1,594.3 1,511.6 1,451.5 1,335.2 1,232.0 Other long-term assets 439.9 390.1 361.0 309.9 257.6 Total assets $ 2,253.1 $ 2,068.9 $ 1,993.7 $ 1,793.7 $ 1,635.2

Current liabilities $ 463.1 $ 375.3 $ 518.1 $ 333.3 $ 337.5 Long-term debt 777.3 776.8 581.2 580.9 433.0 Other long-term liabilities 216.4 203.8 147.2 332.5 292.8 Province of Sask equity 796.3 713.0 747.2 547.0 571.9 Total liabilities & Province of Saskatchewan’s equity $ 2,253.1 $ 2,068.9 $ 1,993.7 $ 1,793.7 $ 1,635.2

* Amounts do not represent retrospective adoption of IAS 19 defined benefits. † Amounts do not represent retrospective adoption of change in accounting policy for directory revenue recognition.

70 | MANAGEMENT’S DISCUSSION AND ANALYSIS Consolidated Statement of Cash Flows 12 months ended December 31, 15 months ended ($ millions) March 31, 2016 2014 2013 2012 † 2011*† Cash and cash equivalents, beginning of year $ 8.9 $ 24.4 $ 3.5 $ 8.0 $ 18.9 Cash provided by operating activities 333.6 271.0 275.2 287.5 250.3 Cash used in investing activities (370.4) (279.1) (341.1) (308.4) (254.9) Cash provided by (used in) financing activities 44.0 (7.4) 86.8 16.4 (70.7) Increase (decrease) in cash from continuing ops 7.2 (15.5) 20.9 (4.5) (75.3) Increase in cash from discontinued ops – – – – 64.4 Cash and cash equivalents, end of year $ 16.1 $ 8.9 $ 24.4 $ 3.5 $ 8.0

Financial Indicators 12 months ended December 31, 15 months ended ($ millions) March 31, 2016 2014 2013 2012 † 2011*† Return on equity 16.8% 10.5% 14.0% 19.0% 24.4% Debt ratio 51.9% 52.8% 49.1% 51.3% 44.1% Dividends declared $ 37.5 $ 53.3 $ 81.1 $ 84.3 $ 138.6 Dividends paid $ 30.0 $ 83.7 $ 73.6 $ 106.2 $ 109.9 Capital Expenditures $ 378.0 $ 282.7 $ 355.8 $ 329.9 $ 268.3

Consolidated Statement of Income Q5 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 ($ millions) 2015/16 2015/16 2015/16 2015/16 2015/16 2014 2014 2014 2014 Revenue $ 316.7 $ 318.6 $ 315.2 $ 318.0 $ 305.9 $ 311.9 $ 306.4 $ 308.6 $ 304.1 Other income 1.4 (0.6) 1.8 1.4 0.5 (1.0) 1.2 0.8 0.7 318.1 318.0 317.0 319.4 306.4 310.9 307.6 309.4 304.8

Expenses Goods and services purchased 133.6 162.5 137.1 136.4 135.3 159.4 141.4 143.9 130.0 Salaries, wages and benefits 100.8 92.3 89.4 93.5 98.8 92.7 89.8 93.4 98.5 Depreciation 42.2 39.7 41.7 44.0 43.8 44.7 40.4 40.4 40.7 Amortization 9.7 9.1 6.7 9.8 8.3 10.9 12.0 10.0 8.6 Internal labour capitalized (5.5) (6.6) (5.1) (5.3) (4.8) (6.1) (5.6) (5.8) (5.6) 280.8 297.0 269.8 278.4 281.4 301.6 278.0 281.9 272.2

Results from operating activities 37.3 21.0 47.2 41.0 25.0 9.3 29.6 27.5 32.6

Net finance expense (8.3) (8.4) (10.9) (13.1) (4.1) (4.7) (7.0) (5.7) (5.2) Net income $ 29.0 $ 12.6 $ 36.3 $ 27.9 $ 20.9 $ 4.6 $ 22.6 $ 21.8 $ 27.4 Other comprehensive income (loss) (53.2) 30.4 (10.8) 33.5 (5.8) (6.5) (16.5) (9.1) (25.2) Total comprehensive income (loss) $ (24.2) $ 43.0 $ 25.5 $ 61.4 $ 15.1 $ (1.9) $ 6.1 $ 12.7 $ 2.2

SASKTEL 2015/16 ANNUAL REPORT | 71 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

Annual Operating Statistics As at March 31, 2016 December 31, ($ millions) 2014 2013 2012 2011 Customer Accesses Wireless* 614,221 618,083 615,694 607,659 594,405 Wireline* 404,928 437,486 464,204 490,263 513,637 Internet (includes Max) 266,237 258,547 254,873 250,068 246,472 Max subscribers 107,321 103,716 101,147 97,262 93,960 Total accesses 1,392,707 1,417,832 1,435,918 1,445,252 1,448,474

12 months ended December 31, 15 months ended ($ millions) March 31, 2016 2014 2013 2012 2011 Employees and payroll Total employees 3,956 3,999 4,079 4,031 4,053

Salaries earned (000’s) $ 361,265 $ 322,173 $ 314,390 $ 295,714 $ 296,025

* Does not include SaskTel internal use

72 | MANAGEMENT’S DISCUSSION AND ANALYSIS GLOSSARY Hosting: The management of data, which involves securely storing, serving and maintaining IT services and applications 4G (fourth generation): The generation of wireless for customers. technologies that includes HSPA+, LTE and LTE advanced, as defined by the International Telecommunications Union. HSPA+ (high-speed packet access plus): A 4G technology capable of delivering manufacturer-rated wireless data ADSL (asymmetric digital subscriber line): An IP technology download speeds of up to 21 Mbps (typical speeds of 4 to that allows existing copper telephone lines to carry voice, 6 Mbps expected). HSPA+ dual-cell technology can double data and video, and enables three simultaneous video those download speeds. streams into a home. Internet of Things (IoT): A network of uniquely identifiable AWS (advanced wireless services) spectrum: Spectrum in end points (or things) that interact without human the 1.7 and 2.1 GHz frequency ranges that is used in North intervention, most commonly over a wireless network. America for 4G services. It is commonly used in urban and These systems collect, analyze and act on information in real suburban areas. time and can be deployed to enable the creation of smart connected businesses, homes, cars and cities. Broadband: Telecommunications services that allow the simultaneous high-speed transmission of voice, data and IP (Internet protocol): A packet-based protocol for delivering video at speeds of 1.5 Mbps and above. data across networks.

CDMA (code division multiple access): A wireless technology IP-based network: A network designed using IP and QoS that spreads a signal over a frequency band that is larger than (quality of service) technology to reliably and efficiently the signal in order to enable the use of a common band by support all types of customer traffic, including voice, data many users and achieve signal security and privacy. and video. An IP-based network allows a variety of IP devices and advanced applications to communicate over a single Cloud computing: A system in which software, data and common network. services reside in data centres accessed over the Internet from any connected device. IP TV (Internet protocol television): A television service that uses a two-way digital broadcast signal sent through a CRTC (Canadian Radio-television and Telecommunications network by way of a streamed broadband connection to a Commission): The federal regulator for radio and television dedicated set-top box. broadcasters and cable-TV and telecommunications companies in Canada. LTE (long-term evolution): A 4G mobile telecommunications technology that is the leading global wireless industry standard. Data centre: A facility for hosted applications and data storage and management. M2M (machine-to-machine): Technologies and networked devices that are able to exchange information and perform EVDO (evolution data optimized): A wireless radio actions without any human assistance. broadband protocol that delivers data download speeds of up to 2.4 Mbps. It is part of the CDMA family of standards. EVDO Mbps (megabits per second): A measurement of data Revision A delivers data download speeds of up to 3.1 Mbps. transmission speed, defined as the amount of data transferred in a second between two telecommunications points or Fibre network: Hair-thin glass fibres along which light pulses within a network. Mbps is millions of bits per second and are transmitted. Optical fibre networks are used to transmit Gbps (gigabits per second) is billions of bits per second. large amounts of data between locations. Over-the-top (OTT): Content, services and applications FTTx (fibre to the x): A collective term for any broadband in a video environment where the delivery occurs network architecture using optical fibre to replace all or part through a medium other than the established video of the existing copper local loops. FTTH denotes fibre to delivery infrastructure. the home, FTTP denotes premises and FTTN denotes node or neighbourhood.

SASKTEL 2015/16 ANNUAL REPORT | 73 MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

PCS (personal communications services): Digital wireless NON-GAAP AND OTHER FINANCIAL MEASURES voice, data and text messaging services in the 1.9 GHz ARPU (average revenue per unit): ARPU is defined as the frequency range. revenue attributed to certain services divided by the average number of related units in the period. Postpaid: A conventional method of payment for services where a subscriber is billed and pays for a significant portion Capital intensity: This measure provides a basis for of services and usage in arrears, after consuming the services. comparing the level of capital expenditures to those of other companies of varying size within the same industry. Prepaid: A method of payment for wireless services that allows a customer to prepay for a set amount of airtime and/ This measure is calculated as capital expenditures (excluding or data in advance of actual usage. spectrum licences and non-monetary transactions) divided by total operating revenues. Roaming: A service offered by wireless network operators that allows subscribers to use their mobile phones while in Debt ratio: The debt ratio measures the capitalization of the service area of another operator. the Corporation. This measure allows for capital structure comparison with other companies in the same industry. Spectrum: The range of electromagnetic radio frequencies It is defined as net debt divided by total capitalization. Net used in the transmission of voice, data and video. The debt is defined as long-term and short-term debt minus cash capacity of a wireless network is in part a function of the and sinking funds. Total capitalization is defined as net debt amount of spectrum licensed and used by the carrier. plus period-end equity.

Video on demand (VOD): An interactive TV technology that EBITDA (earnings before interest, income taxes, enables customers to access content at their convenience, depreciation and amortization): EBITDA is used as an allowing them to view programming in real time or download indicator of a company’s operating performance and ability and view it later. to incur and service debt, and as a valuation metric. VoIP (voice over Internet protocol): The transmission of EBITDA is defined as operating revenue minus operating voice signals over the Internet or IP network. expenses. Operating revenue is defined as total revenue exclusive of other income. Operating expenses are defined Wave 3 solutions: Next-generation wireless offerings that as the sum of goods and services purchased, salaries, wages use Internet of Things technology to provide solutions to and benefits less internal labour capitalized. businesses and consumers. EBITDA margin: EBITDA margin is the percentage of Wi-Fi (wireless fidelity): Networking technology that allows operating revenue available for debt coverage, capital any user with a Wi-Fi-enabled device to connect to a wireless investment and return to the shareholder. access point or hotspot in high-traffic public locations. EBITDA margin is defined as EBITDA divided by operating revenue.

ROE (return on equity): ROE measures the return to the shareholders based on the equity retained by the Corporation. The calculation is defined as net income divided by average equity for the fiscal period.

74 | MANAGEMENT’S DISCUSSION AND ANALYSIS Consolidated Financial Statements Consolidated Financial Statements

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements, included in the annual report of Saskatchewan Telecommunications Holding Corporation for the fifteen months ended March 31, 2016, are the responsibility of management and have been approved by the Board of Directors. Management has prepared the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. The policies set out have been consistently applied to all the periods presented unless otherwise noted. The financial information presented elsewhere in this annual report is consistent with that in the financial statements.

To ensure the integrity and objectivity of the financial data, management maintains a comprehensive system of internal controls including written policies and procedures, an organizational structure that segregates duties and a comprehensive internal audit program. These measures provide reasonable assurance that transactions are recorded and executed in compliance with legislation and required authority, assets are properly safeguarded and reliable financial records are maintained.

The Board of Directors fulfills its responsibility with regard to the financial statements principally through its Audit Committee, consisting of outside directors, which meets periodically with management as well as with the internal and external auditors. The Audit Committee is responsible for engaging or re-appointing the services of the external auditor. Both the internal and external auditors have free access to this committee to discuss their audit work, their opinion on the adequacy of internal controls and the quality of financial reporting. The Audit Committee has met with management and the external auditor to review the Corporation’s annual consolidated financial statements prior to submission to the Board of Directors for final approval.

The consolidated financial statements have been audited by the independent firm of KPMG LLP Chartered Accountants, as appointed by the Lieutenant Governor in Council and approved by Crown Investments Corporation of Saskatchewan.

Ron Styles Charlene Gavel President and Chief Financial Officer Chief Executive Officer May 31, 2016

SASKTEL 2015/16 ANNUAL REPORT | 75 CONSOLIDATED FINANCIAL STATEMENTS (continued)

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

I, Ron Styles, the Chief Executive Officer of Saskatchewan Telecommunications Holding Corporation (SaskTel), and I, Charlene Gavel, the Chief Financial Officer of SaskTel, certify the following: a. That we have reviewed the financial statements included in the annual report of SaskTel. Based on our knowledge, having exercised reasonable diligence, the financial statements included in the annual report, fairly present, in all material respects the financial condition, results of operations, and cash flows, as of March 31, 2016, and for the periods presented in the financial statements.

b. That based on our knowledge, having exercised reasonable diligence, the financial statements included in the annual report of SaskTel do not contain any untrue statements of material fact, or omit to state a material fact that is either required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made.

c. That SaskTel is responsible for establishing and maintaining effective internal control over financial reporting, which includes safeguarding of assets and compliance with applicable legislative authorities; and SaskTel has designed internal controls over financial reporting that are appropriate to the circumstances of SaskTel.

d. That SaskTel conducted its assessment of the effectiveness of the corporation’s internal controls over financial reporting and, based on the results of this assessment, SaskTel can provide reasonable assurance that internal controls over financial reporting as of March 31, 2016, were operating effectively and no material weaknesses were found in the design or operation of the internal controls over financial reporting.

Ron Styles Charlene Gavel President and Chief Financial Officer Chief Executive Officer May 31, 2016

76 | CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS’ REPORT

To The Members of the Legislative Assembly, Province of Saskatchewan

We have audited the accompanying consolidated financial statements of Saskatchewan Telecommunications Holding Corporation which comprise the consolidated statement of financial position as at March 31, 2016, the consolidated statements of income and other comprehensive loss, changes in equity and cash flows for the fifteen month period then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Saskatchewan Telecommunications Holding Corporation as at March 31, 2016, and its consolidated financial performance and its consolidated cash flows for the fifteen month period then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants May 31, 2016 Regina, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

SASKTEL 2015/16 ANNUAL REPORT | 77 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Consolidated Statement of Income and Other Comprehensive Loss For the fifteen For the twelve months ended months ended Thousands of dollars Note March 31, 2016 December 31, 2014 Revenue 3 $1,574,394 $1,231,001 Other income 3 4,540 1,689 1,578,934 1,232,690

Expenses Goods and services purchased 704,928 574,645 Salaries, wages and benefits 474,779 374,402 Depreciation 9 211,410 166,239 Amortization 10 43,594 41,485 Internal labour capitalized (27,311) (23,093) 1,407,400 1,133,678

Results from operating activities 171,534 99,012 Net finance expense 4 44,826 22,605

Net income 126,708 76,407

Other comprehensive loss Items that will never be reclassified to net income Actuarial losses on employee benefit plans 18 (5,886) (57,308)

Total comprehensive income $ 120,822 $ 19,099

All net income and total comprehensive income are attributable to Crown Investments Corporation of Saskatchewan. See Accompanying Notes

Consolidated Statement of Changes in Equity Accumulated other Equity comprehensive Retained Total Thousands of dollars Note advances income (loss) earnings equity Balance at January 1, 2015 $ 250,000 $ (49,149) $ 512,171 $ 713,022 Net income – – 126,708 126,708 Other comprehensive loss 18 – (5,886) – (5,886) Total comprehensive income (loss) for the fiscal period – (5,886) 126,708 120,822 Dividends declared – – 37,500 37,500 Balance March 31, 2016 $ 250,000 $ (55,035) $ 601,379 $ 796,344

Balance at January 1, 2014 $ 250,000 $ 8,159 $ 489,056 $ 747,215 Net income – – 76,407 76,407 Other comprehensive loss 18 – (57,308) – (57,308) Total comprehensive income (loss) for the year – (57,308) 76,407 19,099 Dividends declared – – 53,292 53,292 Balance December 31, 2014 $ 250,000 $ (49,149) $ 512,171 $ 713,022

See Accompanying Notes

78 | CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Position

As at March 31, December 31, Thousands of dollars Note 2016 2014 Assets

Current assets Cash 5 $ 16,099 $ 8,948 Trade and other receivables 6 132,788 116,932 Inventories 7 24,627 15,796 Prepaid expenses 8 45,336 25,550 218,850 167,226

Property, plant and equipment 9 1,594,338 1,511,600 Intangible assets 10 301,054 269,302 Sinking funds 11 129,497 112,571 Other assets 12 9,322 8,188 $2,253,061 $2,068,887

Liabilities and Province's equity

Current liabilities Trade and other payables 13 $ 158,190 $ 165,397 Dividend payable 7,500 - Notes payable 14 229,231 143,298 Other liabilities 15 68,126 66,643 463,047 375,338

Deferred revenue 10,417 7,526 Deferred income – government funding 16 38,117 40,050 Long-term debt 17 777,256 776,780 Employee benefit obligations 18 167,880 156,171 1,456,717 1,355,865

Commitments and contingencies 23 Province of Saskatchewan's equity Equity advance 19 250,000 250,000 Accumulated other comprehensive loss (55,035) (49,149) Retained earnings 601,379 512,171 796,344 713,022 $2,253,061 $2,068,887

See Accompanying Notes

On behalf of the Board

Grant Kook Glenys Sylvestre May 31, 2016

SASKTEL 2015/16 ANNUAL REPORT | 79 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Consolidated Statement of Cash Flows For the fifteen For the twelve months ended months ended Thousands of dollars Note March 31, 2016 December 31, 2014 Operating activities Net income $ 126,708 $ 76,407 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 9, 10 255,004 207,724 Net finance expense 4 44,826 22,605 Interest paid (49,775) (39,288) Interest received 1,966 1,630 Amortization of government funding 16 (6,459) (6,242) Other 9,533 13,357 Net change in non-cash working capital 20 (48,178) (5,162) 333,625 271,031

Investing activities Property, plant and equipment expenditures (296,952) (228,993) Intangible asset expenditures (78,054) (52,630) Government funding 16 4,565 2,538 (370,441) (279,085)

Financing activities Proceeds from long-term debt – 195,240 Net proceeds (repayment) of notes payable 85,933 (110,043) Sinking fund installments 11 (11,966) (8,866) Dividends paid (30,000) (83,694) 43,967 (7,363)

Increase (decrease) in cash 7,151 (15,417) Cash, beginning of fiscal period 8,948 24,365 Cash, end of fiscal period $ 16,099 $ 8,948

See Accompanying Notes

80 | CONSOLIDATED FINANCIAL STATEMENTS Note 1 – General information Saskatchewan Telecommunications Holding Corporation (the Corporation) is a corporation located in Canada. The address of the Corporation’s registered office is 2121 Saskatchewan Drive, Regina, SK, S4P 3Y2. The Corporation is a Saskatchewan Provincial Crown corporation operating under the authority of The Saskatchewan Telecommunications Holding Corporation Act and, as such, the Corporation and its wholly owned subsidiaries are not subject to Federal or Provincial income taxes in Canada.

By virtue of The Crown Corporations Act, 1993, the Corporation has been designated as a subsidiary of Crown Investments Corporation of Saskatchewan (CIC). Accordingly, the financial results of the Corporation are included in the consolidated financial statements of CIC, a Provincial Crown corporation.

One of the Corporation’s subsidiaries, Saskatchewan Telecommunications (SaskTel) is regulated by the Canadian Radio- television and Telecommunications Commission (CRTC) under the Telecommunications Act (Canada).

The Corporation markets and supplies a range of wireless, voice, entertainment, Internet, data, equipment, print and online advertising, security, software and consulting products and services.

Note 2 – Basis of presentation Certain of the Corporation’s accounting policies that relate to the consolidated financial statements as a whole are incorporated in this section. Where an accounting policy is applicable to a specific note to the accounts, the policy is described within that note. This note also describes new standards, amendments or interpretations that were either effective and applied by the Corporation during the current fiscal period or that were not yet effective.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

Change of year end The Corporation has been directed by the provincial government to change its fiscal year end to March 31 to coincide with that of the Province of Saskatchewan. The first complete fiscal period will consist of the fifteen (15) months ending March 31, 2016. Information included in the following discussion focuses on the 15 months of the current fiscal period as compared to the twelve (12) month fiscal period ending December 31, 2014. As a result, information contained in these consolidated financial statements may not be comparable with previously reported information.

Functional currency The consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.

Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following: • Fair value through profit and loss financial instruments are measured at fair value, and • The employee benefit obligation is recognized as the fair value of the plan assets less the present value of the accrued benefit obligation.

Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

SASKTEL 2015/16 ANNUAL REPORT | 81 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 – Basis of presentation, continued

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements includes the following: • Use of the straight-line basis of depreciation and amortization (Note 9 – Property, plant and equipment and Note 10 – Intangible assets), • Classification of intangible assets – indefinite life (Note 10 – Intangible assets), and • Accounting for government funding (Note 16 – Deferred income – government funding).

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include: • Useful lives and depreciation rates for property, plant and equipment (Note 9 – Property, plant and equipment), • Useful lives and amortization rates for intangible assets (Note 10 – Intangible assets), • Use of estimates when calculating the recoverable amounts of intangible assets (Note 10 – Intangible assets), and • Measurement of the employee benefit obligations (Note 18 – Employee benefits).

Significant accounting policies The accounting policies that relate to the consolidated financial statements as a whole are set out below. Additional significant accounting policies are disclosed throughout the notes to the financial statements with the related disclosures. Accounting policies have been applied consistently by the Corporation and its subsidiaries throughout all periods presented unless otherwise indicated.

Basis of consolidation Business combinations For acquisitions, the Corporation measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in net income.

The Corporation elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Corporation incurs in connection with a business combination are expensed as incurred.

Subsidiaries The financial statements include the financial statements of the Corporation and its subsidiaries.

A subsidiary is an entity that is controlled by another entity, known as the parent. The Corporation controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

82 | CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Basis of presentation, continued

Separate audited financial statements for each of the undernoted wholly owned corporations, which are consolidated in these financial statements, are prepared and released publicly: Subsidiary Principal Activity Saskatchewan Telecommunications (SaskTel) Telecommunications Saskatchewan Telecommunications International, Inc. Telecommunications software solutions (SaskTel International) & consulting DirectWest Corporation (DirectWest) Print and on-line advertising SecurTek Monitoring Solutions Inc. (SecurTek) Security monitoring

Transactions eliminated on consolidation Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements.

Impairment testing Assets that have an indefinite useful life (i.e. spectrum licences and goodwill) or intangible assets that are not yet ready for use are not subject to amortization and are tested at least annually for impairment (typically in the second quarter), or more frequently if events or circumstances indicate there may be an impairment. At the end of each reporting period, the Corporation reviews the carrying amounts of its assets in use, including property, plant and equipment and identifiable intangible assets with finite lives, to determine whether there is any indication that they have suffered an impairment loss.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit or the CGU). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination. This allocation is subject to an operating segment ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.

The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in net income. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurement are observable and the significance of the inputs. The Corporation’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value.

SASKTEL 2015/16 ANNUAL REPORT | 83 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 – Basis of presentation, continued

The three levels of the fair value hierarchy are: Level 1 – Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2 – Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 – Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Corporation at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Comparative figures Certain of the 2014 comparative figures have been reclassified to conform with the financial statement presentation adopted for the current fiscal period.

Additional accounting policies Additional significant accounting policies are disclosed throughout the following notes with the related financial disclosures.

Accounting Accounting Note Topic Page Note Topic Page Policies Policies 3 Revenue and other income X 86 Deferred income – 16 X 96 government funding 4 Net finance expense X 88 17 Long-term debt X 97 5 Cash X 88 18 Employee benefits X 98 6 Trade and other receivables X 88 Equity advances and 7 Inventories X 89 19 X 103 capital disclosures 8 Prepaid expenses 89 Consolidated statement of 20 104 9 Property, plant and equipment X 90 cash flows 10 Intangible assets X 92 Financial instruments and related 21 X 104 11 Sinking funds X 94 risk management 12 Other assets 95 22 Related party transactions 108 Commitments and 13 Trade and other payables X 95 23 109 contingencies 14 Notes payable X 96 24 Operating leases 110 15 Other liabilities 96

Application of revised International Financial Reporting Standards The International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) did not issue any standards, amendments or interpretations to existing standards during the current fiscal period that were applied by the Corporation.

84 | CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Basis of presentation, continued

New standards and interpretations not yet adopted Certain new standards, interpretations and amendments to existing standards were issued by the IASB or IFRIC that are mandatory for fiscal periods beginning after March 31, 2016. These include:

Standard Description Impact Effective Date Amendments to IAS 1, Issued to improve the effectiveness of The Corporation is currently evaluating Fiscal years beginning on Presentation of financial presentation and disclosure in financial reports, the impact of these amendments on the or after January 1, 2016, statements with the objective of reducing immaterial financial statements, but does not anticipate applied prospectively. disclosures. a significant impact on operations from adoption. Amendments to IAS Issued to clarify acceptable methods of The Corporation is currently evaluating Fiscal years beginning on 16, Property, plant and depreciation and amortization. the impact of these amendments on the or after January 1, 2016, equipment and IAS 38, financial statements, but does not anticipate applied prospectively. Intangible assets a significant impact on operations from adoption. Amendments to IFRS 11, Issued to provide additional guidance on The Corporation is currently evaluating Fiscal years beginning on Joint arrangements accounting for the acquisition of an interest in the impact of these amendments on the or after January 1, 2016, a joint operation. financial statements, but does not anticipate applied prospectively. a significant impact on operations from adoption. Amendments to IAS 7, Issued to require a reconciliation of the The Corporation is currently evaluating Fiscal years beginning on Statement of cash flows opening and closing liabilities that form part the impact of these amendments on the or after January 1, 2017, of an entity’s financing activities, including financial statements, but does not anticipate applied prospectively. both changes arising from cash flows and a significant impact on operations non-cash changes. from adoption. IFRS 9, Financial The standard sets out the requirements for IFRS 9 may affect the classification, Fiscal years beginning on instruments recognizing and measuring financial assets, measurement and valuation of certain or after January 1, 2018, financial liabilities and some contracts to assets and liabilities. The Corporation is applied retrospectively with buy and sell non-financial items. It also has currently evaluating the impact of IFRS 9 certain exceptions. Early modified the hedge accounting model to on the financial statements. adoption is permitted. better link the economics of risk management with the accounting treatment of hedges. IFRS 15, Revenue from This standard establishes principles to record IFRS 15 will affect how the Corporation Fiscal years beginning on or contracts with customers revenues from contracts for the sale of goods accounts for revenues from contracts after January 1, 2018, applied or services, unless the contracts are in the with customers and the related contract retrospectively with certain scope of other IFRSs. Under IFRS 15, revenue costs for wireless operations and other practical expedients available. is recognized at an amount that reflects the segments. The Corporation is currently Early adoption is permitted. expected consideration receivable in exchange evaluating the impact of IFRS 15 on the for transferring goods or services to a financial statements. customer, applying the following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation The new standard also provides guidance relating to contract costs and for the measurement and recognition of gains and losses on the sale of certain non-financial assets such as property and equipment. Additional disclosures will also be required under the new standard. IFRS 16, Leases Under the new standard all leases will be IFRS 16 may affect the classification, Fiscal years beginning on or brought onto companies’ balance sheets. IFRS measurement and valuation of leases. after January 1, 2019, applied 16 also removes the classification of leases as The Corporation is currently evaluating retrospectively with certain either operating leases or finance leases (for the impact of IFRS 16 on the practical expedients available. the lessee—the lease customer), treating all financial statements. Early adoption is permitted. leases as finance leases.

SASKTEL 2015/16 ANNUAL REPORT | 85 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 3 – Revenue and other income Accounting policies Revenue represents the fair value of the consideration received or receivable for the services provided and equipment sales, net of discounts, volume rebates and sales taxes. Revenue from the rendering of services and sale of equipment is recognized in the period the services are provided or the equipment is sold, when there is persuasive evidence that an arrangement exists, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Corporation and, in the case of equipment sales, when the significant risks and rewards of ownership of the goods are transferred to the buyer. Where the Corporation acts as an agent in a transaction, amounts collected on behalf of the principal are excluded from revenue.

Revenues from local telecommunications, data, Internet, entertainment and security services are recognized based on access to the Corporation’s network and facilities at the rate plans in effect during the period the service is provided. Certain service connection charges and activation fees, along with corresponding costs are deferred and recognized over the average expected term of the customer relationship. Revenues from long distance and wireless airtime are recognized based on the usage or rate plans in the period service is provided. Revenues from equipment sales are recognized when the significant risks and rewards of ownership of the goods are transferred to the buyer, typically when the equipment is delivered to and accepted by the customer. Revenues for longer term contracts are recognized in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed. Payments received in advance are recorded as deferred revenue until the product or service is delivered.

Customer solutions may involve the delivery of multiple services and products that occur at different points and over different periods of time. The multiple services are separated into their respective accounting units and consideration is allocated among the accounting units. The relevant revenue recognition policies are applied to each accounting unit. When an amount allocated to a delivered item is contingent upon the delivery of additional items or meeting specified performance conditions, the amount allocated to that delivered item is limited to the non-contingent amount.

When the Corporation receives no identifiable, separable benefit for consideration given to a customer (e.g. discounts and rebates), the consideration is recorded as a reduction of revenue rather than as an expense.

Revenues are earned through the sale of print and on-line advertising. Advertising revenues are generally recognized, in accordance with the contractual terms with the advertisers, on a monthly basis over the life of the advertising, commencing with the display date. Amounts billed in advance for advertising are deferred and recognized over the life of the contract.

Revenues for perpetual licences are recognized on delivery or according to the terms of the licence agreement. Where the arrangement includes multiple elements, perpetual licence revenues are recognized on delivery, provided the undelivered elements are not essential to the functionality of the licence, the Corporation has evidence of fair value for all the undelivered items and completion costs are reliably measurable. Fees for professional services, other than in the context of multiple element arrangements are recognized as services are rendered. Support and maintenance fees are recognized over the term of the contract. Revenues for customized software projects and consulting services are recognized using the percentage-of- completion method. Amounts billed or paid in advance of services provided are recorded as deferred revenue.

86 | CONSOLIDATED FINANCIAL STATEMENTS Note 3 – Revenue and other income, continued

The Canadian Radio-television and Telecommunications Commission (CRTC) has established a National Subsidy Fund to subsidize Local Exchange Carriers (LECs), like the Corporation, that provide service to residential customers located in high cost service areas (HCSAs). The CRTC has set the rate per line and band for all LECs. The Corporation recognizes the revenue on an accrual basis by applying the rate to the number of residential network access lines served during the period in HCSAs.

Customer contributions specifically related to access to the Corporation’s network, based on standard terms and conditions, are recognized as revenue when the customer is connected to the network. Other contributions, either related to access to the Corporation’s network based on non-standard terms or conditions, or based on specifically contracted products or services, are assessed to determine the appropriate revenue recognition for the products or services provided, based on the Corporation’s revenue recognition policies.

Supporting information For the fifteen For the twelve months ended months ended Thousands of dollars Note March 31, 2016 December 31, 2014 Services revenue Wireless services $ 618,145 $ 482,252 maxTV, Internet and data services 406,042 305,162 Local and enhanced services 290,198 242,662 Long distance services 58,883 53,179 Equipment 81,325 54,948 Advertising services 50,315 41,898 Security monitoring services 28,511 22,914 International software and consulting services 8,962 6,202 Other services 32,013 21,784 1,574,394 1,231,001

Other income Net loss on retirement or disposal of property, plant and equipment (5,590) (3,198) Amortization of government funding 16 6,459 6,242 Other 3,671 (1,355) 4,540 1,689 $1,578,934 $1,232,690

SASKTEL 2015/16 ANNUAL REPORT | 87 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 4 – Net finance expense Accounting policies Finance income is comprised of interest income on funds invested, changes in fair value of financial assets at fair value through profit or loss and net interest income on the net defined benefit asset.

Finance expenses are comprised of interest expense on borrowings, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and the net interest expense on the net defined benefit liability. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognized as an expense.

Supporting information For the fifteen For the twelve months ended months ended Thousands of dollars Note March 31, 2016 December 31, 2014 Recognized in consolidated net income

Interest expense on financial liabilities measured at amortized cost $ 51,807 $ 40,377 Interest capitalized (7,290) (7,316) Net interest expense 44,517 33,061 Net change in fair value of unimpaired financial assets – at fair value through profit or loss 11 3,082 Net interest on defined benefit liability 18 7,235 4,202 Finance expense 54,834 37,263

Net change in fair value of unimpaired financial assets (8,576) at fair value through profit or loss 11 – Interest income on unimpaired financial assets at fair value through profit or loss 11 (8,042) (4,452) Interest income on loans and receivables (1,966) (1,630) Finance income (10,008) (14,658) Net finance expense $ 44,826 $ 22,605

Interest capitalization rate 4.30% 4.67%

Note 5 – Cash Accounting policies The Corporation classifies cash and cash equivalents, including amounts with a maturity of 90 days or less, as financial instruments through profit and loss. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value with revaluation gains and losses included in net income in the period in which the gains and losses arise.

Note 6 – Trade and other receivables Accounting policies The Corporation initially recognizes trade and other receivables at fair value on the date that they are originated. Subsequent to initial recognition trade and other receivables are measured at amortized cost using the effective interest method, less any provision for impairment losses of trade accounts receivable.

The Corporation considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

88 | CONSOLIDATED FINANCIAL STATEMENTS Note 6 – Trade and other receivables, continued

In assessing collective impairment, the Corporation uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Supporting information As at March 31, December 31, Thousands of dollars Note 2016 2014 Accounts receivables Customer accounts receivable 21 $ 86,279 $ 81,390 Accrued receivables – customer 2,215 4,434 Allowance for doubtful accounts 21 (2,227) (1,716) 86,267 84,108

High cost serving area subsidy 2,708 2,784 Other 43,813 30,040 $ 132,788 $ 116,932

Note 7 – Inventories Accounting policies Inventories for resale are valued at the lower of weighted average cost and net realizable value. Other supplies inventories are valued at the lower of average cost and replacement cost.

In establishing the appropriate provision for supplies inventory obsolescence, management estimates the likelihood that supplies inventory on hand will become obsolete due to changes in technology. Other supplies are charged to inventory when purchased and expensed or capitalized when used.

Supporting information As at March 31, December 31, Thousands of dollars 2016 2014 Inventories for resale $ 21,822 $ 12,590 Materials and supplies 2,805 3,206 $ 24,627 $ 15,796

The cost of inventories recognized as an expense during the fiscal period was $98.3 million (2014 – $63.8 million).

For the fiscal period ended March 31, 2016, write-downs of inventory to net realizable value amounted to $0.9 million (2014 – $0.4 million).

Note 8 – Prepaid expenses

As at March 31, December 31, Thousands of dollars 2016 2014 Prepaid expenses $ 37,913 $ 19,346 Deferred service connection charges 3,940 4,239 Short-term customer incentives 3,483 1,965 $ 45,336 $ 25,550

SASKTEL 2015/16 ANNUAL REPORT | 89 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 9 – Property, plant and equipment Accounting policies Property, plant and equipment are measured at cost, less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to bringing the assets to a working condition for their intended use. The cost of self-constructed assets includes materials, services, direct labour and directly attributable overheads. Borrowing costs associated with major capital and development projects are capitalized during the construction period. Assets under construction are recorded as in progress until they are operational and available for use, at which time they are transferred to property, plant and equipment.

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in net income as incurred.

When property, plant and equipment is disposed of or retired, the related cost and accumulated depreciation is eliminated from the accounts. Any resulting gain or loss, determined as the difference between the sale proceeds and the carrying amount of the asset, is reflected in net income for the fiscal period.

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognized in net income on the straight-line basis over the estimated useful life of each part of an item of property, plant and equipment as follows: Asset Estimated useful life Buildings and improvements 20–75 years Plant and equipment 3–50 years Office furniture and equipment 3–17 years

Depreciation methods, useful lives and residual values are reviewed at each financial reporting date and adjusted if appropriate.

Change in accounting estimate During the fiscal period, the Corporation adjusted the useful lives of certain assets to coincide with the revised exit dates for the related technologies. The impacts are as follows: Fiscal period ending March 31, 2021 and Millions of dollars 2016 2017 2018 2019 2020 beyond

Depreciation expense increase (decrease) $ 1.0 $ (2.4) $ (8.0) $ (2.7) $ 10.1 $ 2.0

90 | CONSOLIDATED FINANCIAL STATEMENTS Note 9 – Property, plant and equipment, continued

Supporting information Plant and Buildings and Office furniture Plant under Thousands of dollars equipment improvements and equipment construction Land Total

Cost Balance at January 1, 2015 $ 3,178,774 $ 453,387 $ 155,872 $ 139,989 $ 36,054 $ 3,964,076 Additions 59,001 301 22,420 219,487 – 301,209 Transfers 182,345 19,675 7,280 (210,769) 1,469 – Retirements and disposals (35,680) (2,455) (27,621) – (16) (65,772) Balance at March 31, 2016 $ 3,384,440 $ 470,908 $ 157,951 $ 148,707 $ 37,507 $ 4,199,513

Balance at January 1, 2014 $ 3,014,983 $ 442,137 $ 133,872 $ 148,046 $ 35,725 $ 3,774,763 Additions 38,322 104 13,909 176,684 1,014 230,033 Transfers 163,663 12,372 8,345 (184,741) 361 – Retirements and disposals (38,194) (1,226) (254) – (1,046) (40,720) Balance at December 31, 2014 $ 3,178,774 $ 453,387 $ 155,872 $ 139,989 $ 36,054 $ 3,964,076

Accumulated depreciation Balance at January 1, 2015 $ 2,217,911 $ 135,014 $ 99,551 $ – $ – $ 2,452,476 Depreciation for the fiscal period 171,303 13,311 26,796 – – 211,410 Retirements and disposals (29,962) (1,609) (27,140) – – (58,711) Balance at March 31, 2016 $ 2,359,252 $ 146,716 $ 99,207 $ – $ – $ 2,605,175

Balance at January 1, 2014 $ 2,118,628 $ 125,084 $ 79,586 $ – $ – $ 2,323,298 Depreciation for the year 135,624 10,310 20,305 – – 166,239 Retirements and disposals (36,341) (380) (340) – – (37,061) Balance at December 31, 2014 $ 2,217,911 $ 135,014 $ 99,551 $ – $ – $ 2,452,476

Carrying amounts At January 1, 2015 $ 960,863 $ 318,373 $ 56,321 $ 139,989 $ 36,054 $ 1,511,600 At March 31, 2016 $ 1,025,188 $ 324,192 $ 58,744 $ 148,707 $ 37,507 $ 1,594,338

At January 1, 2014 $ 896,355 $ 317,053 $ 54,286 $ 148,046 $ 35,725 $ 1,451,465 At December 31, 2014 $ 960,863 $ 318,373 $ 56,321 $ 139,989 $ 36,054 $ 1,511,600

SASKTEL 2015/16 ANNUAL REPORT | 91 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 10 – Intangible assets Accounting policies Intangible assets are defined as being identifiable, able to bring future economic benefits to the Corporation and controlled by it. An asset meets the identifiability criterion when it is separable or arises from contractual rights.

Intangible assets are recorded initially at cost of acquisition or development and relate primarily to software, customer accounts, spectrum licences and goodwill. Internally generated intangible assets relate primarily to software. An intangible asset is recognized when it is probable that the expected future economic benefits attributable to the asset will flow to the company and the cost of the asset can be measured reliably.

Software development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Corporation intends to and has sufficient resources to complete development and to use or sell the asset. The expenditures capitalized include the cost of materials, direct labour, and overhead costs that are directly attributable to preparing the asset for its intended use. Borrowing costs related to the development of qualifying assets are capitalized. Other development expenditures are recognized in net income as incurred.

Capitalized software is measured at cost less accumulated amortization and accumulated impairment losses.

Costs associated with maintaining software as well as expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized as an expense as incurred.

Customer accounts, acquired individually, with a group of other assets, or through the Corporation’s authorized dealers are measured at cost less accumulated amortization and any accumulated impairment losses.

Spectrum licences have been classified as indefinite-life intangible assets due to the current licencing terms, the most significant of which are minimal renewal fees and no regulatory precedent of material licence revocation. Should these factors change, the classification of indefinite-life will be reassessed. Spectrum licences have been recorded at cost less any accumulated impairment losses.

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For measurement of goodwill at initial recognition, see Note 2 - Basis of consolidation. Subsequently goodwill is measured at cost less any accumulated impairment losses. Goodwill is no longer amortized.

Amortization is recognized in net income on a straight-line basis over the estimated useful lives of the assets as follows: Asset Estimated useful life Software 1–10 years Customer accounts 5–10 years

Change in accounting estimate During the fiscal period, intangible assets that had been assessed as impaired were sold resulting in an impairment loss reversal of $2.0 million, which has been recorded in amortization expense.

During the fiscal period the Corporation adjusted the useful lives of certain assets to coincide with the revised expected useful lives. The impacts are as follows: Fiscal period ending March 31, 2021 and Millions of dollars 2016 2017 2018 2019 2020 beyond

Amortization expense increase (decrease) $ (11.9) $ (10.6) $ (7.1) $ (3.6) $ 4.3 $ 28.9

92 | CONSOLIDATED FINANCIAL STATEMENTS Note 10 – Intangible assets, continued

Supporting information Customer Spectrum Under Thousands of dollars Goodwill Software accounts licences development Total

Cost Balance at January 1, 2015 $ 5,976 $ 244,282 $ 85,865 $ 73,538 $ 55,933 $ 465,594 Acquisitions – 7,861 6,170 35,200 11,230 60,461 Acquisitions – internally developed – 2,226 – – 14,098 16,324 Transfers – 74,081 – – (74,081) – Disposals – (3,713) – – – (3,713) Balance at March 31, 2016 $ 5,976 $ 324,737 $ 92,035 $ 108,738 $ 7,180 $ 538,666

Balance at January 1, 2014 $ 5,976 $ 189,508 $ 81,024 $ 65,981 $ 76,795 $ 419,284 Acquisitions – 5,610 4,841 7,557 23,945 41,953 Acquisitions – internally developed – 1,325 – – 9,360 10,685 Transfers – 52,167 – – (52,167) – Retirements and disposals – (4,328) – – (2,000) (6,328) Balance at December 31, 2014 $ 5,976 $ 244,282 $ 85,865 $ 73,538 $ 55,933 $ 465,594

Accumulated amortization Balance at January 1, 2015 $ – $ 143,461 $ 52,831 $ – $ – $ 196,292 Amortization for the fiscal period – 38,194 7,400 – – 45,594 Reversal of impairment losses – (2,000) – – – (2,000) Disposals – (2,274) – – – (2,274) Balance at March 31, 2016 $ – $ 177,381 $ 60,231 $ – $ – $ 237,612

Balance at January 1, 2014 $ – $ 111,633 $ 47,450 $ – $ – $ 159,083 Amortization for the year – 33,482 5,381 – – 38,863 Impairment losses – 2,622 – – – 2,622 Retirements and disposals – (4,276) – – – (4,276) Balance at December 31, 2014 $ – $ 143,461 $ 52,831 $ – $ – $ 196,292

Carrying amounts At January 1, 2015 $ 5,976 $ 100,821 $ 33,034 $ 73,538 $ 55,933 $ 269,302 At March 31, 2016 $ 5,976 $ 147,356 $ 31,804 $ 108,738 $ 7,180 $ 301,054

At January 1, 2014 $ 5,976 $ 77,875 $ 33,574 $ 65,981 $ 76,795 $ 260,201 At December 31, 2014 $ 5,976 $ 100,821 $ 33,034 $ 73,538 $ 55,933 $ 269,302

Impairment testing for the cash-generating unit containing goodwill and recoverability testing of finite-life intangible assets under development For the purpose of impairment testing, goodwill and a portion of finite-life assets under development are allocated to one CGU: DirectWest. This is the lowest level within the Corporation at which goodwill is monitored for internal management purposes, which is not higher than the Corporation’s operating segments.

SASKTEL 2015/16 ANNUAL REPORT | 93 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 10 – Intangible assets, continued

Management has determined that changes to the core business have made the use of the fair value less cost to sell method inappropriate for determination of the recoverable amount. This resulted in a change to value in use as the primary valuation methodology for the CGU. The value in use methodology used the 2015-2019 financial plan as well as a terminal value capitalization. The expected cash flows and terminal value were then discounted at a rate to reflect the expected return and risk for the CGU.

The key material assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the assumptions represent management’s assessment of future trends in the industry and have been based on historical data from both external and internal sources.

Discount rate 17% Terminal value capitalization 22% Growth rate -2%

Impairment testing indicated no impairment at March 31, 2016.

Impairment testing for cash-generating units containing indefinite-life intangible assets and recoverability testing of finite-life intangible assets under development For the purpose of impairment testing, indefinite-life intangible assets (spectrum licences) and finite-life intangible assets under development are allocated to SaskTel. These are the lowest level within the Corporation at which indefinite-life intangible assets and finite-life intangible assets under development are monitored for internal management purposes, which is not higher than the Corporation’s operating segments.

The Corporation’s CGU impairment tests were based on fair value less costs to sell using comparable companies that are listed on exchanges and are actively traded. Share prices for these companies were used to derive an EV to EBITDA ratio that was applied to the EBITDA of the unit to determine the recoverable amount. The Corporation applied an industry average EV to EBITDA ratio adjusted for minority discounts associated with publicly traded shares to the EBITDA of the unit to estimate the recoverable amount of the unit. Impairment testing indicated no impairment at March 31, 2016.

Note 11 – Sinking funds Accounting policies Sinking funds have been designated as fair value through profit or loss because the Corporation manages these investments through the Saskatchewan Ministry of Finance who makes purchase and sale decisions based on their fair value in accordance with the Corporation’s documented risk management and investment strategy. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value with revaluation gains and losses included in net income in the period in which the gains and losses arise.

Supporting information Under conditions attached to the long-term debt, the Corporation is required to pay annually into sinking funds, administered by the Saskatchewan Ministry of Finance, amounts representing 1% to 2% of the debt outstanding. The fund includes the Corporation’s required contributions, its proportional share of earnings and its proportional share of revaluation gains or losses.

94 | CONSOLIDATED FINANCIAL STATEMENTS Note 11 – Sinking funds, continued

The changes in the carrying amount of sinking funds are as follows: As at March 31, December 31, Thousands of dollars 2016 2014 Sinking funds, beginning of fiscal period $ 112,571 $ 90,677 Installments 11,966 8,866 Earnings 8,042 4,452 Valuation adjustment (3,082) 8,576 $ 129,497 $ 112,571

Sinking fund installments due in each of the next five fiscal years ending March 31 are as follows: Thousands of dollars

2017 $ 9,366 2018 9,366 2019 9,366 2020 9,366 2021 9,366

Note 12 – Other assets

As at March 31, December 31, Thousands of dollars 2016 2014 Deferred service connection charges $ 4,952 $ 5,366 Long-term customer incentives 1,300 201 Financing leases 3,056 2,394 Other 14 227 $ 9,322 $ 8,188

Note 13 – Trade and other payables Accounting policies The Corporation initially recognizes trade and other payables on the trade date at which the Corporation becomes a party to the contractual provisions of the instrument. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.

The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

Supporting information As at March 31, December 31, Thousands of dollars 2016 2014 Trade payables and accrued liabilities $ 116,237 $ 122,415 Payroll and other employee-related liabilities 31,490 36,149 Other 10,463 6,833 $ 158,190 $ 165,397

SASKTEL 2015/16 ANNUAL REPORT | 95 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 14 – Notes payable Accounting policies The Corporation initially recognizes debt securities issued on the date that they are originated. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.

The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire.

Supporting information Notes payable are due to the Province of Saskatchewan’s General Revenue Fund (GRF). These notes have varying maturities from April 1, 2016, to June 1, 2016, and have a weighted average effective interest rate of 0.63% (2014 – 1.02%).

Note 15 – Other liabilities

As at March 31, December 31, Thousands of dollars Note 2016 2014 Advance billings $ 53,538 $ 49,375 Deferred customer activation and connection fees 4,892 5,206 Current portion of deferred income – government funding 16 5,069 5,030 Customer deposits 4,627 7,032 $ 68,126 $ 66,643

Note 16 – Deferred income - government funding Accounting policies Government grants are recognized initially as deferred income when there is reasonable assurance that they will be received and the Corporation will comply with the conditions associated with the grant. Grants that compensate the Corporation for expenses incurred are recognized in the consolidated statement of income and other comprehensive income on a systematic basis in the same period in which the expenses are recognized. Grants that compensate the Corporation for the cost of an asset are recognized in the consolidated statement of income and other comprehensive income on a systematic basis over the useful life of the asset.

Supporting information The Corporation received $55.0 million in funding from the Province of Saskatchewan through CIC as partial funding of the Rural Infrastructure Program (RIP), $49.2 million has been applied to capital expenditures and $5.8 million to operating expenditures.

As part of the transfer of the satellite distribution and communication assets of Saskatchewan Communications Network Corporation (SCN) to the Corporation, the Province of Saskatchewan through the Ministry of Education has provided $1.3 million in funding for distance education hardware upgrades. To date $0.5 million has been applied to capital expenditures and $0.4 million to operating expenditures. Future funded expenditures will be based on system maintenance, upgrade and expansion requirements.

In conjunction with the Aboriginal Affairs and Northern Development Canada (AANDC) funding agreement, the Corporation has received funding of $17.1 million for Internet service to selected First Nations schools and health facilities in Saskatchewan as well as $8.8 million in conjunction with the First Nations Service Improvement Project (FNSIP).

Through the Connecting Canadians program (CCDN) sponsored by Innovation, Science and Economic Development Canada, the Corporation receives partial funding to provide access to high speed Internet in rural and remote parts of Saskatchewan. To date, $3.5 million has been accrued. This amount will be recognized as income in accordance with the Corporation’s accounting policy.

96 | CONSOLIDATED FINANCIAL STATEMENTS Note 16 – Deferred income - government funding, continued

December 31, March 31, 2016 As at 2014 Thousands of dollars RIP SCN FNSIP AANDC CCDN Total Total

Balance, beginning $ 31,727 $ 769 $ 6,974 $ 5,610 $ – $ 45,080 $ 48,784 Funding – – 48 1,067 3,450 4,565 2,538 31,727 769 7,022 6,677 3,450 49,645 51,322 Amortization 5,356 61 627 415 – 6,459 6,242 26,371 708 6,395 6,262 3,450 43,186 45,080 Current portion 4,285 45 500 239 – 5,069 5,030 $ 22,086 $ 663 $ 5,895 $ 6,023 $ 3,450 $ 38,117 $ 40,050

Note 17 – Long-term debt Accounting policies The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. These financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method.

Supporting information As at March 31, 2016 December 31, 2014 Principal Effective Principal Effective Thousands of dollars outstanding interest rate (%) outstanding interest rate (%) Unsecured advances from the Province of Saskatchewan 3.90% due July 2020 $ 149,359 4.01 $ 149,194 4.01 10.08% due December 2020 126,141 10.18 126,052 10.18 3.20% due June 2024 50,313 3.11 50,354 3.11 4.15% due December 2025 50,000 4.15 50,000 4.15 5.75% due March 2029 73,545 5.97 73,455 5.97 5.60% due March 2029 35,000 5.18 35,000 5.18 3.40% due February 2042 147,841 3.49 147,777 3.49 3.90% due June 2045 145,057 4.09 144,948 4.09 Total due to Province of Saskatchewan $ 777,256 $ 776,780

The Corporation’s long-term debt is unsecured. As at March 31, 2016, principal repayments due in each of the next five fiscal years were as follows: Fiscal period ending March 31, Millions of dollars 2017 2018 2019 2020 2021

Principal repayments $ – $ – $ – $ – $ 276.6

There is a requirement attached to above advances to make annual payments into sinking funds in amounts representing 1% to 2% of the original issue. The cumulative annual payments plus interest earned are used for the retirement of debt issues upon maturity, on a net basis (see Note 11 – Sinking funds).

SASKTEL 2015/16 ANNUAL REPORT | 97 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 18 – Employee benefits The Corporation has: a defined benefit pension plan (Plan A), a service recognition defined benefit plan (Plan B), and a defined contribution pension plan (Plan C).

Accounting policies Defined benefit plans (Plans A & B) The Corporation’s net obligation in respect of Plan A is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; discounting that amount and deducting the fair value of plan assets.

The calculation of the net defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Corporation, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income (OCI). The Corporation determines the net interest expense (income) on the net defined liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to the defined benefit plan are recognized in net income.

When the benefits of the plan are changed or when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in net income. The Corporation recognizes gains and losses on the settlement of the defined benefit plan when the settlement occurs.

The Corporation’s net obligation in respect of Plan B is calculated by estimating the amount of future benefit that employees have earned in return for their service in prior periods and discounting that amount. The calculation of the defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method.

Defined contribution plans (Plan C) A defined contribution plan is a post-employment benefit under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to the defined contribution pension plan are recognized as an employee benefit expense in the consolidated statement of income and other comprehensive income in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.

Short-term benefits and termination benefits Short-term employee benefit obligations are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligations can be estimated.

Termination benefits are expensed at the earlier of when the Corporation can no longer withdraw the offer of those benefits and when the Corporation recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting period, then they are discounted to their present value.

98 | CONSOLIDATED FINANCIAL STATEMENTS Note 18 – Employee benefits, continued

Supporting information Defined benefit plans (Plans A & B) Plan A, the defined benefit pension plan is governed by SaskTel and has been closed to new membership since 1977. The SaskTel defined benefit pension plan is registered under The Pension and Benefit Act, 1992, Saskatchewan, the Income Tax Act, Canada and regulated by the Financial and Consumer Affairs Authority of Saskatchewan – Pensions Division. Separate audited financial statements for the defined benefit plan are prepared and released publicly.

The SaskTel defined benefit pension plan provides a full pension at age 65, at age 60 with at least 20 years of service or upon completion of 35 years of service. The pension is calculated to be 2% times the average of the highest three years of pensionable earnings times the number of years of service up to a maximum of 35 years of service. A reduced pension may be opted for if certain age and years of service criteria are met.

For employees who retire before the age of 65, but meet other age plus service requirements, either a reduced or unreduced pension may be payable. Pensions are subject to annual indexing with the Consumer Price Index (CPI) up to a maximum of 2% per year.

The defined benefit pension plan is administered by a five member board (SaskTel Pension Board), consisting of two employer representatives, two union representatives and an independent chair. The SaskTel Pension Board is required by law to act in the best interests of the defined benefit pension plan participants and is responsible for setting certain policies (e.g. investment, contribution and indexation policies) of the defined benefit pension plan.

Plan B, the service recognition defined benefit plan provided a retiring allowance of two days salary per year of service which is payable on retirement. Based on the Collective Agreement between the Corporation and Unifor, ratified April 22, 2005, the service recognition defined benefit program was curtailed effective March 19, 2005.

Funding The Corporation is responsible for adequately funding Plan A. Contributions are determined by actuarial valuations. The contributions reflect actuarial assumptions about future investment returns, salary projections and future service benefits. An actuarial valuation for accounting purposes was performed at December 31, 2013. The latest valuation for funding purposes was performed as of December 31, 2013.

All plan members have reached the maximum years of pensionable service and are no longer required to contribute to the plan. As a result employer current service contributions have also ceased. A valuation is performed at least every 3 years to determine the actuarial present value of the accrued pension benefit.

During 2013, provisions of The Pension Benefits Regulations, 1993 were amended to allow the pension plan to determine funding requirements based on the going concern actuarial valuation versus the former requirement to use the solvency funding actuarial valuation. Under the going concern actuarial valuation, the plan is in a surplus and therefore contributions are not required.

Plan B is unfunded. The Corporation expects to pay $1.9 million in the next fiscal year related to Plan B.

SASKTEL 2015/16 ANNUAL REPORT | 99 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 18 – Employee benefits, continued

Defined benefit obligation Actuarial assumptions The accounting actuarial valuation includes a provision for uncommitted and ad hoc benefit increases, and uses management’s best estimates based on assumptions that reflect the most probable set of economic circumstances and planned courses of action. The estimate, therefore, involves risks that the actual amount may differ materially from the estimate. The major assumptions used in the valuations are as follows: As at March 31, 2016 December 31, 2014 Plan A Plan B Plan A Plan B Discount rate – end of period 3.60% 3.20% 3.80% 3.20% Inflation rate 2.50% – 2.50% – Expected salary increase – 3.00% – 3.00% 100% of CPI to a 100% of CPI to a Post-retirement index – – maximum of 2% maximum of 2% Canadian Pensioner 2014 – Canadian Pensioner 2014 – Private Sector Mortality Table Private Sector Mortality Table Future mortality at 100% for males and 110% for at 100% for males and 110% for females projected generationally females projected generationally with CPM improvement Scale B with CPM improvement Scale B Estimated average remaining employee service life – 10.1 years – 8.2 years

At March 31, 2016, the weighted average duration of the defined benefit obligation was 11.8 years (2014 – 11.9 years).

The actuarial assumptions are based on management’s expectations, independent actuarial advice and guidance provided by IFRS. The most significant assumption is the discount rate, which is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the obligations.

Based on the actuarial assumptions, the following graph illustrates that, while the duration of the plan liabilities is approximately 12 years, benefit payments are expected to continue over the next 70 years. Consistent with the nature of the plan, benefit payments are expected to decline and the value of the liability is expected to be reduced over the next 70 years.

In addition, the following chart illustrates that a significant portion of the plan members are below 70 years of age.

Forecast Benefits Payable by the Pension Plan($ Millions) Average Age of Pension Plan Members (at March 31, 2016) (at March 31, 2016)

1,400 80 450

1,200 70 400

60 1,000 350 50 800 300 40 250 600 30 200 400 20 150 200 10 100 0 0 2017 2027 2037 2047 2057 2067 2077 50

0 Liabilities (Left axis) Forecast benefits payable (Right axis) 55-59<55 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+

100 | CONSOLIDATED FINANCIAL STATEMENTS

1190 1240 1290 1340 1390 1440 1490 1540 1590 Note 18 – Employee benefits, continued

Sensitivity analysis The following illustrates the effect on the obligations of the plans of changing certain actuarial assumptions while holding other assumptions constant: Defined benefit obligation As at March 31, 2016 Thousands of dollars Increase Decrease Discount rate (1% movement) $ (122,184) $ 148,460 Inflation (1% movement) (123,410) 59,257 Future indexing (1% movement) – (144,665)

Movement in the present value of the defined benefit obligation The following table shows a reconciliation from the opening balances to the closing balances for the defined benefit liability (asset) and its components. Defined benefit obligation Fair value of plan assets Net defined benefit liability As at March 31, December 31, March 31, December 31, March 31, December 31, Thousands of dollars 2016 2014 2016 2014 2016 2014

Balance, beginning of fiscal period $ 1,173,570 $ 1,078,003 $(1,017,399) $ (982,434) $ 156,171 $ $95,569

Included in net income Current service cost – – 430 377 430 377 Interest cost (income) 53,523 47,835 (46,288) (43,633) 7,235 4,202 53,523 47,835 (45,858) (43,256) 7,665 4,579

Included in OCI Remeasurement loss (gain): - Actuarial loss arising from financial assumptions 25,790 116,858 – – 25,790 116,858 - Return on plan assets excluding interest income – – (19,904) (59,550) (19,904) (59,550) 25,790 116,858 (19,904) (59,550) 5,886 57,308

Other Benefits paid (87,683) (69,126) 85,841 67,841 (1,842) (1,285) Balance, end of fiscal period $ 1,165,200 $ 1,173,570 $ (997,320) $ (1,017,399) $ 167,880 $ 156,171

Represented by: Net defined benefit liability (Plan A) $ 148,558 $ 135,272 Net defined benefit liability (Plan B) 19,322 20,899 $ 167,880 $ 156,171

SASKTEL 2015/16 ANNUAL REPORT | 101 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 18 – Employee benefits, continued

Plan assets The asset allocation of the defined benefit pension plan is as follows: As at March 31, December 31, Thousands of dollars 2016 2014 Asset Category Short-term investments $ 9,737 $ 10,062 Pooled real estate 141,327 137,066 Canadian equities 82,004 111,493 Canadian pooled equity funds 7,129 8,466 US equities 19,353 30,617 US pooled equity fund 116,737 115,565 Non-North American pooled equity funds 202,653 208,440 Bonds 752 369 Pooled bond funds 367,981 369,230 947,673 991,308

Investments under securities lending program Short-term investments 3,536 1,423 Canadian equities 38,706 24,564 US equities 7,568 541 49,810 26,528 Total investments $ 997,483 $ 1,017,836

The defined benefit pension plan’s permissible investments include Canadian equities (including rights, warrants, installment receipts and capital shares), U.S. and international equities, bonds of Canadian issuers, short term securities, mortgages, real estate and pooled funds. Any other type of investment is not permitted without prior approval of the SaskTel Pension Board.

Taking into consideration the investment and risk philosophy of the defined benefit pension plan, the following range and target asset mix has been established: Asset category Range Target Equities 40–50% 45% Real estate 10–20% 15% Fixed income 30–50% 40%

The defined benefit pension plan’s investment policy provides a framework for the prudent investment and administration of the Pension Fund for the purpose of managing capital assets. The policy provides the investment managers with a written statement of specific quality, quantity and rate of return standards. The policy is re-visited annually to ensure it is meeting the objectives of the defined benefit pension plan’s capital management to ultimately meet all pension obligations.

The SaskTel Pension Board employs a pension risk management strategy which addresses continued capital market volatility and the overall demographic trends for the plan. This approach strives to ensure the assets of the defined benefit pension plan evolve to match the liabilities of the plan.

102 | CONSOLIDATED FINANCIAL STATEMENTS Note 18 – Employee benefits, continued

Defined contribution plans (Plan C) Plan C, the defined contribution pension plan requires the Corporation to contribute 7.45% of employees’ pensionable earnings and employees to contribute a minimum of 4.45% of pensionable earnings. The total cost for the defined contribution plan is equal to the Corporation’s required contribution. The Corporation’s pension cost and employer contributions for the Public Employees Pension Plan are $27.1 million for the fiscal period ended March 31, 2016 (2014 – $21.0 million).

Note 19 – Equity advance and capital disclosures Accounting policies The Corporation periodically receives funding from its parent and sole equity holder, CIC. Funding is first analyzed to determine whether the funding is a transaction with the equity holder in their capacity as an equity holder e.g. equity injection, or whether the funding would be available to other parties for a specific purpose. If there is no requirement to comply with certain conditions relating to the operating activities of the entity, the funding is recorded as an equity advance. If the Corporation must comply with certain past or future conditions relating to the operating activities of the Corporation, and the funding could be available to other parties for a specific purpose, the funding is recorded as a government grant (see Note 16 – Deferred income - government funding).

Supporting information The Corporation has received advances from CIC to form its equity capitalization. The advances are an equity investment in the Corporation by CIC.

Due to its ownership structure, the Corporation has no access to capital markets for internal equity. Equity advances in the Corporation are determined by the shareholder on an annual basis. Dividends to CIC are determined through the Saskatchewan Provincial budget process on an annual basis.

The Corporation closely monitors its debt level utilizing the debt ratio as a primary indicator of financial health. The debt ratio measures the amount of debt in a corporation’s capital structure. The Corporation uses this measure in assessing the extent of financial leverage and in turn, its financial flexibility.

Too high a ratio relative to target indicates an excessive debt burden that may impair the Corporation’s ability to withstand downturns in revenues and still meet fixed payment obligations. The ratio is calculated as net debt divided by capitalization at the end of the fiscal period.

The Corporation reviews the debt ratio targets of all its subsidiaries on an annual basis to ensure consistency with industry standards. This review includes subsidiary corporations’ plans for capital spending. The target debt ratios for subsidiaries are approved by the Board. The Corporation uses targeted debt ratios to compile a weighted average debt to equity ratio for the consolidated entity. The target ratio for 2016 was 53.2%.

The Corporation raises most of its capital requirements through internal operating activities and long-term debt through the Saskatchewan Ministry of Finance. This type of borrowing allows the Corporation to take advantage of the Province of Saskatchewan’s strong credit rating and receive financing at attractive interest rates.

The Corporation made no changes to its approach to capital management during the fiscal period.

SASKTEL 2015/16 ANNUAL REPORT | 103 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 19 – Equity advance and capital disclosures, continued

The debt ratio is as follows: As at March 31, December 31, Thousands of dollars Note 2016 2014 Long-term debt 17 $ 777,256 $ 776,780 Notes payable 229,231 143,298 Less: Sinking funds 11 129,497 112,571 Cash and short-term investments 16,099 8,948

Net debt 860,891 798,559 Equity (a) 796,344 713,022

Capitalization $1,657,235 $1,511,581

Debt ratio 51.9% 52.8%

a) Equity includes equity advances, accumulated other comprehensive income (loss) and retained earnings at the end of the period.

Note 20 – Consolidated statement of cash flows For the fifteen For the twelve months ended months ended Thousands of dollars March 31, 2016 December 31, 2014 Net change in non-cash working capital balances related to operations Trade and other receivables $ (15,856) $ (406) Inventories (8,831) 654 Prepaid expenses (19,786) (1,733) Trade and other payables (7,207) (3,341) Other liabilities 1,483 1,034 Deferred revenues 2,891 (334) Other (872) (1,036) $ (48,178) $ (5,162)

Note 21 – Financial instruments and related risk management Accounting policies The Corporation initially recognizes financial assets and financial liabilities in the consolidated financial statements at fair value (normally the transaction price) adjusted for transaction costs. Transaction costs related to financial assets or financial liabilities at fair value through profit or loss are recognized immediately in net income. Regular way purchases and sales of financial assets are accounted for on the trade date. Financial instruments recorded at fair value on an ongoing basis are remeasured at each reporting date and changes in the fair value are recorded in either net income or OCI.

The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Corporation is recognized as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

104 | CONSOLIDATED FINANCIAL STATEMENTS Note 21 – Financial instruments and related risk management, continued

Derivatives may be embedded in other host instruments and are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument, when the embedded derivative has the same terms as those of a stand-alone derivative, and the combined contract is not held-for-trading or designated at fair value. These embedded derivatives are measured at fair value with subsequent changes recognized in net income. See Note 2 – Basis of presentation for discussion of the policies related to fair value measurements.

Supporting information The Corporation is exposed to fluctuations in foreign exchange rates and interest rates. The Corporation utilizes a number of financial instruments to manage these exposures. The Corporation mitigates the risk associated with these financial instruments through Board-approved policies, limits on use and amount of exposure, internal monitoring, and compliance reporting to senior management and the Board. The Corporation’s financial risks have not changed significantly from the prior period.

Market risk Market risk represents the potential for loss from changes in the value of financial instruments. Value can be affected by changes in interest rates, foreign exchange rates and equity prices.

Interest rate risk Interest rate risk represents the potential for loss from changes in the value of financial instruments related to interest rate movements. Interest rate risk primarily impacts the value of sinking fund investments and debt refinancing.

The Corporation has on deposit with the Province of Saskatchewan, under the administration of the Ministry of Finance, $129.5 million (2014 – $112.6 million) in sinking funds, which is required for certain long-term debt issues. At March 31, 2016, the GRF has invested these funds primarily in Provincial and Federal government bonds with varying maturities to coincide with related debt maturities and they are managed based on this maturity profile and market conditions. The Corporation may be exposed to interest rate risk on the sinking funds. Assuming all other variables remain constant at March 31, 2016, a yield curve shift in excess of 1.0% could have a material impact on net income. Specifically, a 1.0% weakening in interest rates (or bond yields) could have a 13.4% ($12.0 million) favourable effect on net income while a 1.0% strengthening would have a 13.4% ($12.0 million) unfavourable effect on net income.

The Corporation may be exposed to interest rate risk on the maturity of its long-term debt. However, in the current interest rate environment, these risks are considered low. As a result, the Corporation has no financial contracts in place to offset interest rate risk as of March 31, 2016. The Corporation has not provided a sensitivity analysis of the impact of interest rate changes on net income as substantially all of the Corporation’s debt is at fixed rates at March 31, 2016, with maturities of 2020 and beyond.

Foreign currency risk The Corporation is exposed to currency risk, primarily U.S. dollars, through transactions with foreign suppliers and short-term foreign commitments. Assuming all other variables remain constant at March 31, 2016, currency fluctuations in excess of 15% would have a material impact on the cash flow of the Corporation. Specifically, a 15% weakening in the Canadian dollar versus the US dollar exchange rate could have a $14.2 million unfavourable effect on cash flow while a 15% strengthening could have a $14.2 million favourable effect on cash flow. The Corporation uses a combination of derivative financial instruments to manage these exposures when deemed appropriate. The Corporation does not actively trade derivative financial instruments.

Credit risk Credit risk is the risk that one party to a transaction will fail to discharge an obligation and cause the other party to incur a financial loss. Concentration of credit risk relates to groups of customers or counterparties that have similar economic or industry characteristics that cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Corporation does not have material concentrations of credit risk. Current credit risk relates to trade and other receivables and unbilled revenue, sinking funds and interest receivable.

SASKTEL 2015/16 ANNUAL REPORT | 105 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 21 – Financial instruments and related risk management, continued

Sinking funds are invested in Provincial and Federal government bonds. As such, the related credit risk associated with these investments is considered low.

Trade and other receivables and unbilled revenue are diversified among many residential, farm and commercial customers primarily throughout Saskatchewan.

In addition, the Corporation maintains credit policies and limits in respect to short-term investments and counterparties to financial transactions. The carrying amount of financial assets represents the maximum credit exposure as follows: As at March 31, December 31, Thousands of dollars Note 2016 2014 Cash $ 16,099 $ 8,948 Trade and other receivables 6 132,788 116,932 Sinking funds 11 129,497 112,571 $ 278,384 $ 238,451

The allowance for doubtful accounts, which provides an indication of potential impairment losses, is reviewed regularly based on an analysis of the aging of customer accounts receivable and an estimate of outstanding amounts that are considered to be uncollectible. Historically, the Corporation has not written off a significant portion of its customer accounts receivable balances.

The allowance for doubtful accounts and the aging of customer accounts receivable are detailed as follows: Allowance for doubtful accounts As at March 31, December 31, Thousands of dollars 2016 2014 Opening balance $ 1,716 $ 2,082 Less: accounts written off (13,304) (9,216) Recoveries 6,144 4,858 Provisions for losses 7,671 3,992 Ending balance $ 2,227 $ 1,716

Customer accounts receivable As at March 31, December 31, Thousands of dollars Note 2016 2014 Current $ 70,876 $ 65,619 30–60 days 11,274 11,963 61–90 days 2,509 2,547 Greater than 90 days 1,620 1,261

Gross customer accounts receivable 6 86,279 81,390 Allowance for doubtful accounts 6 (2,227) (1,716)

Net customer accounts receivable $ 84,052 $ 79,674

106 | CONSOLIDATED FINANCIAL STATEMENTS Note 21 – Financial instruments and related risk management, continued

Liquidity risk Liquidity risk is the risk that the Corporation is unable to meet its financial commitments as they become due. The Corporation is a Provincial Crown corporation and as such has access to capital markets through the Saskatchewan Ministry of Finance.

Sufficient operating cash flows are expected to be generated to fund the short term contractual obligations and the Corporation anticipates it will be able to refinance long-term debt upon maturity.

The following summarizes the contractual maturities of the Corporation’s financial liabilities: Contractual Cash Flows Thousands of dollars Carrying 0–6 7–12 1–2 3–5 More than March 31, 2016 amount Total months months years years 5 years

Long-term debt (a) $ 777,256 $1,290,096 $ 19,754 $ 19,754 $ 39,509 $ 388,036 $ 823,043 Notes payable 229,231 229,378 229,378 – – – – Trade and other payables 158,190 158,190 158,190 – – – – $1,164,677 $1,677,664 $ 407,322 $ 19,754 $ 39,509 $ 388,036 $ 823,043

December 31, 2014 Long-term debt (a) $ 776,780 $1,339,142 $ 19,754 $ 19,754 $ 39,509 $ 118,526 $1,141,599 Notes payable 143,298 143,758 143,758 – – – – Trade and other payables 165,397 165,397 165,397 – – – – $1,085,475 $1,648,297 $ 328,909 $ 19,754 $ 39,509 $ 118,526 $1,141,599

(a) Contractual cash flows for long-term debt include principal and interest payments but exclude sinking fund installments.

Fair value Fair values are approximate amounts at which financial instruments could be exchanged between willing parties based on current markets for instruments with similar characteristics, such as risk, principal and remaining maturities. Fair values are estimates using present value and other valuation techniques that are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates that reflect varying degrees of risk. Therefore, due to the use of judgment and future-oriented information, aggregate fair value amounts should not be interpreted as being realizable in an immediate settlement of the instruments.

Fair value of financial assets and liabilities As at March 31, 2016 December 31, 2014 Carrying Fair Carrying Fair Thousands of dollars Classification (a) Note amount value amount value

Financial assets Cash FVTPL $ 16,099 $ 16,099 $ 8,948 $ 8,948 Trade and other receivables LAR 6 132,788 132,788 116,932 116,932 Investments - sinking funds FVTPL 11 129,497 129,497 112,571 112,571

Financial liabilities Trade and other payables OL 13 158,190 158,190 165,397 165,397 Notes payable OL 14 229,231 229,231 143,298 143,298 Long-term debt OL 17 777,256 923,203 776,780 934,704

(a) Classification details are: FVTPL – fair value through profit or loss LAR – loans and receivables OL – other liabilities

SASKTEL 2015/16 ANNUAL REPORT | 107 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 21 – Financial instruments and related risk management, continued

Financial instruments measured at fair value Cash The carrying values of cash is assumed to approximate fair value.

Investments carried at fair value through profit or loss Sinking Funds The fair value of sinking funds, classified as fair value through profit and loss, is determined by the Saskatchewan Ministry of Finance using information provided by investment dealers. To the extent possible, valuations reflect secondary pricing for these securities.

Financial instruments measured at amortized cost Trade and other receivables, trade and other payables and notes payable The carrying values of trade and other receivables, trade and other payables and notes payable approximate their fair values due to the short-term maturity of these financial instruments.

Long-term debt The fair value of long-term debt is determined by the present value of future cash flows, discounted at the market rate of interest for the equivalent Province of Saskatchewan debt instruments.

Fair value hierarchy As at March 31, 2016 December 31, 2014

Thousands of dollars Level 1 Level 2 Total Level 1 Level 2 Total

Sinking funds $ – $ 129,497 $ 129,497 $ – $ 112,571 $ 112,571 Long-term debt $ – $ 923,203 $ 923,203 $ – $ 934,704 $ 934,704

There were no items measured at fair value using level 3 inputs in 2014 or 2016, and no items transferred between levels in 2014 or 2016.

Embedded derivatives The Corporation had no contracts with embedded derivatives as at December 31, 2014, and March 31, 2016.

Note 22 – Related party transactions The Corporation is indirectly controlled by the Government of Saskatchewan through its ownership of the Corporation’s parent, CIC. Included in these consolidated financial statements are transactions with various Saskatchewan Crown corporations, ministries, agencies, boards and commissions related to the Corporation by virtue of common control by the Government of Saskatchewan and non-Crown corporations and enterprises subject to joint control and significant influence by the Government of Saskatchewan (collectively referred to as “government-related entities”). The Corporation has elected to take a partial exemption under IAS 24 Related Party Disclosures, which allows government-related entities to limit the extent of disclosures about related party transactions with government or other government-related entities.

Routine operating transactions with related parties are settled at prevailing market prices under normal trade terms. For the fiscal period ended March 31, 2016, the aggregate amount of the Corporation’s transactions with other government-related entities are approximately 7.4% of revenues (2014 – 6.8%), 10.3% of operating expenses (2014 – 10.4%) and 1.1% of property, plant and equipment expenditures (2014 – 5.8%).

108 | CONSOLIDATED FINANCIAL STATEMENTS Note 22 – Related party transactions, continued

Key management personnel compensation In addition to their remuneration, the Corporation also provides non-cash benefits to directors and executive officers, either a defined benefit pension or a defined contribution pension, and a service recognition defined benefit pension.

Key management personnel compensation is composed of: For the fifteen For the twelve months ended months ended Thousands of dollars March 31, 2016 December 31, 2014 Short-term employee benefits $ 6,321 $ 4,912 Post-employment benefits Defined contribution 462 256 $ 6,783 $ 5,168

Note 23 – Commitments and contingencies Commitments As at March 31, 2016, the Corporation has committed to spend $40.3 million (2014 – $14.6 million) on property, plant and equipment, $0.1 million (2014 – $6.2 million) on intangible assets and $171.0 million (2014 – $255.2 million) related to operations.

Contingencies On August 9, 2004, a proceeding under The Class Actions Act (Saskatchewan) was brought against several Canadian wireless and cellular service providers, including Saskatchewan Telecommunications Holding Corporation and Saskatchewan Telecommunications. The Plaintiffs seek unquantified damages from the defendant wireless communications service providers. Similar proceedings have been filed by, or on behalf of, Plaintiffs’ counsel in other provincial jurisdictions. On September 17, 2007, the Saskatchewan court certified the Plaintiff’s proceeding as a class action with respect to an allegation of unjust enrichment only for wireless customers during the period of April 1, 1987, and the date of the certification order being February 13, 2008. The class action period was then extended to March 31, 2014. The matter will now proceed in the usual fashion of finalized pleadings, document and oral discovery to trial. The Corporation continues to believe that it has strong defenses to the allegations as certified in the 2004 action.

On July 24, 2009, a second proceeding under The Class Actions Act (Saskatchewan) was issued against several Canadian wireless and cellular service providers, including Saskatchewan Telecommunications Holding Corporation and Saskatchewan Telecommunications. The Corporation believes this second claim involves substantially the same allegations as the 2004 claim. This second action has been conditionally stayed as an abuse of process without prejudice to the plaintiff to pursue their claims in the future if circumstances change. The Corporation believes that it has strong defenses to the allegations contained in the 2009 claim.

On June 26, 2008, a proceeding under The Class Actions Act (Saskatchewan) was brought against several Canadian wireline, wireless and cellular service providers, including Saskatchewan Telecommunications Holding Corporation and Saskatchewan Telecommunications. The proceeding involves allegations by wireless customers of breach of contract, misrepresentation, negligence, collusion, unjust enrichment and breach of statutory obligations concerning fees and charges paid for 9-1-1 service. The Plaintiffs seek unquantified damages from the defendant communications service providers. The Corporation believes that it has strong defenses to the claim and will be defending it. External legal counsel has been retained by the Corporation to handle this matter. A date has yet to be finalized for a hearing of a motion to determine if this claim should be certified as a class action. The Corporation is waiting for a decision of the Court on its application for the Plaintiff to provide particulars (details) of the allegations in its claims.

SASKTEL 2015/16 ANNUAL REPORT | 109 CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 23 – Commitments and contingencies, continued

In September 2011, the Corporation was served with a second 9-1-1 Class Actions claim substantially the same as the 2008 Saskatchewan action noted above. This second claim was issued in Alberta in August 2008, but not served on Saskatchewan Telecommunications Holding Corporation and Saskatchewan Telecommunications until more than three years later. The Corporation believes that it has strong defenses to the claim and will be defending it. External legal counsel has been retained. The Corporation is not aware of any further proceedings being taken in this second action beyond service of the claim.

In November 2011, the Corporation was served with two proposed class action claims, one issued in Saskatchewan and one issued in Alberta. The claims substantially overlap and name the major wireless carriers in Canada, including the Corporation, and Research in Motion as defendants. The proposed claims seek compensation related to Blackberry service issues alleged to have occurred in October 2011. The Corporation believes that it has strong defenses to the claim and will be defending it. The Corporation is not aware of any further proceedings being taken in this action beyond service of the claim.

On February 6, 2013, the Corporation was served with a claim out of the Supreme Court of British Columbia. The Plaintiffs seek unquantified damages from the defendant wireless communications service providers and most known wireless device manufacturers. The claim is primarily one of product liability involving allegations by wireless customers who have had cancer or other afflictions allegedly caused by cell phone use. This claim is being defended by external legal counsel retained by the Corporation’s liability insurer. The Corporation believes there is no merit to the claim and is defending it.

In the normal course of operations, the Corporation becomes involved in various claims and litigation. While the final outcome with respect to claims and litigation pending at March 31, 2016, cannot be predicted with certainty, it is the opinion of management that their resolution will not have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

Note 24 – Operating leases Non-cancellable operating lease rentals are payable as follows: As at March 31, December 31, Thousands of dollars 2016 2014 Less than 1 year $ 8,429 $ 6,573 Between 1 and 5 years 19,644 17,666 Greater than 5 years 10,075 12,997 $ 38,148 $ 37,236

During the fiscal period ended March 31, 2016, the Corporation recognized $17.6 million (2014 – $13.9 million) as rent expense related to operating leases.

110 | CONSOLIDATED FINANCIAL STATEMENTS Corporate Information Board of Directors

Grant Kook international investor syndicated 2004 Canadian Nokia Brier, vice Chair of the Board Fund, and has been the president president of sponsorship for 2010 and chief executive officer of Canadian World Junior Hockey Grant J. Kook is founder, the Ramada Hotels (Regina and Championship, director of 2012 president, chief executive Saskatoon) since 1992. Tim Hortons Brier, chair of 2013 officer and chair of Westcap and 2014 CIS University Cup, Management Ltd., a leading Mr. Kook serves on the boards and past board member of the venture capital and private of numerous private and publicly new Saskatchewan Hockey Hall equity fund manager with over traded companies, including of Fame. half a billion in assets under Saskatchewan Blue Cross management. Founded over and 3sHealth Shared Services Mr. Kook is a recipient of 25 years ago, Westcap has an Saskatchewan. He is the vice the 2013 Saskatchewan uncompromising vision to build president of the Canadian Order of Merit, 2012 Queen long-term value for retail and Venture Capital and Private Equity Elizabeth II Diamond Jubilee institutional investors in a broad Association (CVCA), past member Commemorative Medal, and range of investment funds, of the World Entrepreneurs Commemorative Medal for the including Saskatchewan’s first Association, and was the co- Centennial of Saskatchewan. Retail Venture Capital Fund, chair of the Saskatchewan-Asia He is the recipient of the 2014 Golden Opportunities Fund Inc. Advisory Council. He is active in Saskatoon Tourism Leadership Westcap is also the fund manager many community organizations award, the 2008 B’nai Brith – We to HeadStart on a Home, First including, voluntary past chair are Proud of You Award, Ernst & Nations and Métis Fund, First of the Children’s Hospital Young nominee for Entrepreneur Nations Business Development Foundation of Saskatchewan, of the Year in 1998 and 2003, Fund and a high net worth executive committee member of and was recognized in 2008 Management Buyout Fund. Mr. the Mike Weir Miracle Golf Drive as one of the Province’s Most Kook is also president and chief for Kids, sponsorship chair for the Influential Men by Saskatchewan executive officer of Cheung 2006 PotashCorp Vanier Cup and Business magazine. On Investments Group Ltd., an

Pat Friesen Ms. Friesen is the past chair of Centennial Committee and has Board Member the Saskatchewan Chamber of participated on the boards of the Commerce and was a board Swift Current Agricultural and Pat Friesen resides in Swift member of the Canadian Exhibition Association, Southwest Current and operates Chamber of Commerce in Victim Services, Rotary Club of her own consulting 2012. She has been part of Swift Current, the Swift Current business—Success Business the Saskatchewan Chamber 2005 Provincial Centennial Consulting—specializing in since 2004 and has served that Committee and the 2010 World marketing and communications. organization in many capacities. Ladies Curling Championship. Prior to retirement, she was She also worked with the Swift executive vice president of Ms. Friesen was honoured as Current Chamber of Commerce marketing at Innovation Credit a 2008 Southwest Citizen of for many years, and was Union. She is currently a Swift the Year by the Swift Current president of that organization Current City Councilor and Chamber of Commerce and in 1993. second vice-president of the CAA a 2011 Provincial Woman of Saskatchewan Board of Directors. She was the co-chair of the Influence by Saskatchewan 2014 City of Swift Current Business Magazine.

SASKTEL 2015/16 ANNUAL REPORT | 111 BOARD OF DIRECTORS (continued)

Rachel Heidecker University of Saskatchewan, and She is active in community Board Member senior programmer / analyst with fundraising for the Saskatoon Interactive Tracking Systems Inc. Dragon Boat Festival, and has Rachel Heidecker is currently raised thousands of dollars for manager of Academic and Web Ms. Heidecker has a Master of the Heart & Stroke Foundation of Services, at the University of Business Administration degree Saskatchewan. Saskatchewan, and a sessional in Management & Strategy from lecturer in Management & the University of Saskatchewan, a Marketing at the Edwards post graduate diploma in Object School of Business. Previously, Oriented Software Technology she held positions as project from the University of Calgary, manager at the University Library, and a Bachelor of Science business analyst in the Facilities degree from the University Management Division at the of Saskatchewan.

Jerri Hoback Ms. Hoback has worked as an Board Member accountant in a wide variety of industry sectors including Since receiving her Bachelor of assurance services for a large Commerce degree from the public accounting firm, oil and University of Saskatchewan, gas, electronics manufacturing, Jerri Hoback has earned and financial services. several designations including the Certified Management She is currently a University Accountant designation from the of Saskatchewan Senator, as CMA society of Alberta and the well as a board member for Chartered Director designation the Prince Albert Electoral from McMaster University. District Association.

Reg Howard and 19 years as regional of the Regina Crime Stoppers Board Member manager for Saskatchewan and and the Chris Knox Foundation, Manitoba for The Co-operators on the boards of the Regina Reg Howard is currently Insurance Company. Exhibition Association and the business development manager George Reed Foundation, and as for Brandt Developments Ltd. A well-known community leader, co-chair of the 1966 Grey Cup He formerly held positions as Mr. Howard has a long history of Anniversary Celebration for the vice president of construction community involvement serving a Saskatchewan Roughriders. for Century West Homes wide range of volunteer agencies (commercial and residential), over the past several decades. vice president of human He currently serves on the board resources and marketing for the of the Conexus Arts Centre. He Walker Group of Companies, previously served as the president

112 | BOARD OF DIRECTORS Randy Kachur Bench, the Saskatchewan Court Curling Club, Yorkton Sunrise Board Member of Appeal, and the Supreme Lions Club, Yorkton Minor Court of Canada. Sports Association and Yorkton Randy Kachur has worked in Cardinals Baseball Club. He is the private practice in Yorkton since In 2010, Mr. Kachur received the current chair of the mental health his graduation from the University Queen’s Counsel designation. He review panel for the Sunrise of Saskatchewan with a Bachelor has served as director on boards Health Region. of Law degree in 1978. He is for various corporations involved a partner with the law firm of with residential and commercial Rusnak Balacko Kachur Rusnak, property holdings. and has appeared as counsel in all Mr. Kachur is the past executive levels of court including Provincial member of Yorkton and District Court, the Court of Queen’s Chamber of Commerce, Yorkton

Darrell Kennedy and marketing manager for hosted by Jamie Heward and Board Member TaylorMade – Adidas Golf. Mike Sillinger. Darrell Kennedy is the owner Mr. Kennedy is a board member Mr. Kennedy has a Professional of Timberstone Distribution, of the Saskatchewan Masonry Business Management certificate a wholesale masonry, stucco, Institute and the Regina and Business Administration siding, landscaping and flooring and Region Home Builders diploma from Lethbridge distribution company with Association. He is a long-time Community College. locations across Western board member of the Royal Canada. He also owns Discovery Regina Golf Club and has chaired Marketing, a corporate ad and many golf tournaments, including apparel company. Prior to that, the inaugural Shooting Stars he worked as the territory sales Foundation Golf Tournament

Pamela Lothian She became the first woman a director of Regina Community Board Member to achieve partnership with Basketball Association and the McDougall Ready in the firm’s Arthritis Society of Saskatchewan. Pamela Lothian is a graduate of 100-plus-year history. Pamela She is currently a director of the University of Saskatchewan, practised with the firm for Lex Capital Corp., a private obtaining a Bachelor of Arts 13 years before electing to equity management company, (Political Science) degree in 1982, concentrate on her second and served as co-chair for the and a law degree in 1985. She “career” as a homemaker raising Volunteer Committee for the articled with, and then joined, two daughters. CIS Women’s National Basketball the law firm of McDougall Ready Championships hosted by the (now McDougall Gauley LLP). Ms. Lothian is a past president of University of Regina in 2009. the Regina Bar Association and

Gayle MacDonald Saskatchewan and graduated Ms. MacDonald has served as a Board Member with a diploma in Orthoptics community representative on the from the University Hospital board of Sun West School, and Gayle MacDonald is the Department of Ophthalmology. as a former director of Canterra president, co-owner & co- She went on to open the Seeds Ltd. She is mother of three founder of G-Mac’s AgTeam Inc., Orthoptic Clinic at the Pasqua adult children and a very proud based out of Kindersley with eight Hospital in Regina. She is also a grandmother of two little boys. locations throughout west central graduate of Quantum Shift Ivy She has been an active member Saskatchewan. She has been School of Business at Western in the community, coaching and involved in many aspects of the University and Certified Director participating in various sports as many communities in the area. Graduate of ‘The Director’s well as entertaining with musical Ms. MacDonald was born and College’ c/o The Conference contributions and supporting raised in Plenty, Saskatchewan. Board of Canada. many events promoting She attended the University of community programs and fund-raising events.

SASKTEL 2015/16 ANNUAL REPORT | 113 BOARD OF DIRECTORS (continued)

Garry Reichert He worked with SaskTel Board Member International on projects, including being manager for Garry Reichert retired from the Jilin Power Microwave SaskTel in 2005 after 38 years and Fiber Project in northern of service, in which he held China and Director of progressively senior positions, Engineering for the Leicester including general manager Communications Limited Technology Performance Project in the United Kingdom. and Operations. He is a graduate in Electronic Technologies from SIAST.

John Ritchie He is vice chair of Skate Canada, Board Member Regina, and co-founder and chair of the Saskatchewan John Ritchie retired as first Open Squash Championships. vice president, branch manager Previously, he has chaired the and investment advisor for CIBC Investment Dealers Association Wood Gundy after 41 years of Saskatchewan and the of service. Regina United Way (Division) and he served as a board member for Potash Corporation of Saskatchewan.

Glenys Sylvestre Ms. Sylvestre is a Chartered topics such as fundamentals of Board Member Professional Accountant, and accounting, risk management, was awarded Fellowship in interpretation of financial Glenys Sylvestre is executive 2007. She served for six years information and monitoring lead, University Governance at as a councillor with the Institute financial performance. She the University of Regina. She has of Chartered Accountants of has served on several Regina also been an Instructor with the Saskatchewan, including service community boards including Paul J. Hill School of Business at as president and chair. She also Regina Piranhas Summer Swim the U of R for over 15 years. Prior obtained the Chartered Director Club, Queen City Kinsmen to her employment with the designation in 2011. Gymnastics Club and Arcola East University, she was an audit Community Association. She and assurance manager at Ms. Sylvestre facilitates board currently serves on the board of Deloitte & Touche. and executive training and the Regina Exhibition Association development sessions for Limited (Evraz Place). numerous organizations on

Board Committees Audit Committee Corporate Growth and Environment and Human Governance Committee Glenys Sylvestre, Chair Technology Committee Resources Committee Pam Lothian, Chair Terry Dennis John Ritchie, Chair Reg Howard, Chair Darrell Kennedy Gayle MacDonald Rachel Heidecker Glenys Sylvestre Gayle MacDonald John Ritchie Reg Howard Randy Kachur Randy Kachur Pat Friesen Garry Reichert Pam Lothian Rachel Heidecker Jerri Hoback Pat Friesen Garry Reichert Darrell Kennedy Jerri Hoback

114 | BOARD OF DIRECTORS SaskTel Executive

Ron Styles president of SaskWater and He has a Master of Arts President and Chief Executive Officer SaskHousing, as well as Associate degree (Economics) from the Deputy Minister at Municipal University of Regina, and has Ron Styles assumed the role Government and at Community held positions on a number of SaskTel president and chief Services. In 2014, the Institute of of boards and associations, executive officer in August 2010. Public Administration of Canada including Phenomenome Immediately prior to joining Saskatchewan (IPAC) recognized Discoveries Inc., SaskFerco and SaskTel, Mr. Styles served as Ron for his exceptional Ag West Bio. Ron currently serves president and chief executive leadership and contribution in as a board member for The officer of Crown Investments public administration with the Conference Board of Canada Corporation of Saskatchewan. prestigious Lieutenant Governor’s and is a member of the CEO’s His previous roles include Gold Medal. Advisory Circle for the University Deputy Minister of Finance and of Regina’s Paul Hill School of Highways and Transportation, of Business.

Doug Burnett providing legal advice and (CHRP) designation. He is also Vice President, Human Resources & services to the corporation in a member of the Law Society Corporate Services every facet of business. During of Saskatchewan. Doug also this time, he worked on several serves as a board member for Doug Burnett is responsible for international projects as well the Wicihitowin Foundation, SaskTel’s Corporate Services, as provided advice to Human SecurTek, DirectWest, SaskTel Human Resources, Industrial Resources & Industrial Relations. International, Junior Achievement Relations as well as its Health, and WestWind Aviation. Safety, Environment and Prior to joining SaskTel, Doug Diversity areas. practiced law in Regina from Doug was born and raised 1983 to 1989. in Regina. He is active in his Mr. Burnett has also served community and supports a as acting president of SaskTel He holds a Bachelor of Arts variety of activities involving International for several years and degree from the University of his two children, Jessica and as the executive sponsor for the Regina, a Bachelor of Laws Alexander. He enjoys sports of Saskatoon Square investment. degree from the University of any kind, particularly water and Saskatchewan, and a Certified Doug began his career at SaskTel snow skiing, and enjoys coaching Human Resources Professional in 1990 as corporate counsel alpine skiing.

Sean Devin countries and six continents, SI is Information Technology with President, SaskTel International & a local organization with a global Innovation Place, and director Vice President, ICT Business Solutions reach. Sean is also responsible of Security with Riptown.com for SaskTel’s Information and Media. Sean was also president In 2013, Sean Devin was Communications Technology & chief executive officer for appointed president and chief (ICT) Business Solutions, Excellerate Consulting, a executive officer of SaskTel overseeing the company’s management and technology International (SI). SI markets efforts to facilitate ICT service consulting firm focused on leading-edge software solutions delivery both within the company business and technology and professional consulting and externally. transformation. services, and leverages a unique relationship as a wholly Prior to joining the SaskTel Sean attended William Woods owned subsidiary of SaskTel team, Sean held high-level University in Missouri and earned to enable businesses around positions such as director of a bachelor’s degree in computer the globe to achieve strategic Business Process & Applications information sciences. Born and communications initiatives and and director, Infrastructure & raised in Saskatchewan, Sean projects. With the completion Shared Services with Cameco enjoys volunteering for a variety of over 60 projects spanning 40 Corporation, director of of causes.

SASKTEL 2015/16 ANNUAL REPORT | 115 SASKTEL EXECUTIVE (continued)

Jim Dundas achievements, having grown Board, and Co‑operators Data Chief Information Officer the Saskatchewan operation Services Limited. four-fold and delivering excellent Prior to joining SaskTel in Jim currently serves on the financial performance. November 2013, Jim Dundas SaskTel International Board was regional vice president Throughout his 30-year of Directors. for CGI, where he had overall career in the information Jim was born, raised and executive responsibility for technology industry, Jim educated in Saskatchewan, loves operations in Saskatchewan. has also held positions with cottage life and remains active in Jim received the prestigious Saskatchewan Government the family farm. CGI Builder Award for Insurance, Saskatchewan exceptional leadership Workers Compensation

Charlene Gavel career. Most recently she has and Administration. Charlene Chief Financial Officer held the position of vice president currently serves on the boards and chief financial officer at of SaskTel International, Charlene Gavel is responsible SaskTel International. Prior to SecurTek, DirectWest and the for the corporation’s financial that, Charlene held positions Regina Downtown Business activities and provides leadership with the Regina Qu’Appelle Improvement District Board. in the development of financial Health Region as chief financial strategies. She is also responsible officer and vice president of for corporate security. Financial Services, and with Ms. Gavel has extensive Information Services Corporation experience and has held a variety (ISC) as chief financial officer of positions throughout her and vice president of Finance

Daryl Godfrey Network Services Director He has a Bachelor of Science, Chief Technology Officer in Leicester, UK, and chief Mechanical Engineering degree, technology officer for Tanzania P. Eng, from the University of As chief technology officer, Telecommunications Company. Saskatchewan and is a member Daryl Godfrey’s 33-year of the Association of Professional career with SaskTel includes Daryl has held past positions in Engineers and Geoscientists of senior positions in Network the Regina Engineering Society Saskatchewan (APEGS). Planning and Provisioning, and on the board of TR Labs. SaskTel International, Business He is currently a member of Development and Stentor. the Advisory Board for the University of Regina Faculty of His SaskTel International Engineering and Applied Science. assignments included

Ken Keesey – Sales from 2001 to 2015, and Advisory Boards. Ken previously Vice President, Customer was recently appointed to the served as a board member for Services – Operations position of vice president of Saskatchewan Crime Stoppers Customer Services – Operations and the Saskatoon City Hospital Since beginning his career at in August 2015. Foundation. Additionally, he was SaskTel in 1981, Ken Keesey has one of the founding members held a variety of positions in both Ken was born, raised, and of the SaskTel Helping Our Own SaskTel Sales and Operations educated in Saskatchewan, and People (HOOP) organization, in and has had the privilege of has always been involved in the which he is still actively involved. living in numerous locations community. He is a governor for throughout the great province Junior Achievement of Northern Ken and his wife Marcia reside of Saskatchewan. He was vice Saskatchewan and serves on in Saskatoon. president of Customer Services the Canadian Telecom Pioneer

116 | SASKTEL EXECUTIVE Darcee MacFarlane Ms. MacFarlane has over 25 from the University of Regina, Vice President, Corporate and years with SaskTel, and has as well as a Corporate Social Government Relations held a variety of positions in Responsibility certificate from Marketing Communications, the University of Toronto. In As vice president of Corporate Media Relations, Customer addition, she is a member of the Communications and Relations, Community Relations, IABC (International Association Government Relations for Internal Communications and of Business Communicators) and SaskTel, Darcee MacFarlane is Government Relations. serves on the Board of Directors accountable for media relations, for Computers for Schools. internal communications, Darcee was born and raised customer relations and in Saskatchewan. She has a community relations for Bachelor of Arts degree and the corporation. a Public Relations certificate

Greg Meister Prior to his appointment as of finance and marketing. Greg Vice President, Business Sales vice president, Business Sales has received certificates for and Solutions & Solutions, Greg was vice extension programs from the president of SaskTel’s Customer University of British Columbia Greg Meister leads the SaskTel Services – Operations, where and Queen’s University. As a team responsible for Business he was responsible for the dedicated volunteer, Greg has Sales – Marketing, along with corporation’s advanced networks, held director positions with Delivery & Assurance of the delivery of installation and repair the Battlefords United Way and advanced suite of security, services, and the construction the Prince Albert Pistol and network, hosted and premise- of facilities. Beginning his career Rifle Club. He is currently vice based infrastructure services for with SaskTel in 1993, he has held president of Saskatchewan SaskTel’s business customers. positions in marketing, sales, and Crimestoppers, vice president These services are delivered operations, allowing Greg and of the Saskatoon Gun Club, and and assured by Greg’s team of his family to live and participate director with Saskatchewan Skeet experienced certified IT and in the communities of Regina, Shooting Corp. communications professionals Prince Albert, North Battleford over Saskatchewan’s most Born, raised, and educated in and Saskatoon. advanced networks and Saskatchewan, Greg enjoys living hosted in advanced data centres; Greg holds a Bachelor of in the growing community of designed, built and operated Commerce degree from the Warman with his wife Nadine and by SaskTel. University of Saskatchewan daughter Cassidy. where he focused in the areas

John Meldrum regulatory affairs, including he became vice president, Vice President, Corporate Counsel regulatory policy matters, as well Corporate Counsel and held that and Regulatory Affairs & Chief as SaskTel’s legal department. position until he was appointed to his current position. Privacy Officer John worked five summers As vice president, Corporate with the corporation while In December 2000, he received Counsel and Regulatory Affairs, attending University and, in 1977 the Queen’s Counsel (QC) John Meldrum’s portfolio after receiving his law degree designation. John is a member of includes the provision of legal (LLB) from the University of the Canadian Bar Association and guidance, advice, and services Saskatchewan, joined SaskTel as a the Law Society of Saskatchewan. to the corporation. He is also solicitor in the legal department. He serves on the boards of responsible for the areas of In May of 1984, John became DirectWest, SecurTek, SaskTel carrier relations, carrier services, general counsel and corporate International, and the University land and easements, and secretary; in September 1986 of Regina Rams Football Club.

SASKTEL 2015/16 ANNUAL REPORT | 117 SASKTEL EXECUTIVE (continued)

Stacey Sandison development, corporate Telecom Association and SaskTel Chief Strategy Officer program prioritization and Superannuation boards. She brand management. is currently a board member Stacey Sandison has had an of Women in Communication extensive career at SaskTel, Stacey holds a Bachelor of and Technology, the RCMP with successful leadership Business Administration degree Foundation, and DirectWest. responsibilities in marketing, from the University of Regina sales and operations divisions. and a Masters in Business Currently, the chief strategy Administration degree from Ellis officer, Ms. Sandison is College, New York. accountable for corporate Stacey is a past member of the strategic planning, corporate SecurTek, the Canadian Wireless marketing strategy, service

Katrine White maxTV; Internet products and and communications, customer Vice President, Consumer Sales wireline phone service. She is loyalty and strategic planning. also accountable for the industry- and Solutions Katrine earned a Bachelor of leading sales, customer service As vice president of Consumer Commerce degree from the and support channels. Sales and Solutions, Katrine White University of Saskatchewan leads the team responsible for Prior to this, Ms. White held and a certificate from Queen’s all marketing and operations a number of positions with University Marketing Program. for SaskTel’s consumer market. increasing accountability at She is married with three This includes the development SaskTel and SaskTel Mobility in the children, and loves to travel and and management of SaskTel’s areas of consumer and business spend time at the lake. wireless, voice and data services; product management, advertising

Corporate Directory SaskTel Subsidiaries Executive Officers SaskTel International Senior Operating Managers Gord Farmer Pr esident and Chief Executive Officer, DirectWest Sean Devin President and Chief Executive Officer Darrell Jones Pr esident and Chief Executive Officer, SecurTek Mike Anderson Chief Financial Officer

118 | SASKTEL EXECUTIVE Corporate Governance Statement

AUTHORITY CORPORATE GOVERNANCE PRACTICES SaskTel is a Crown corporation governed by The The SaskTel Board has implemented a comprehensive set of Saskatchewan Telecommunications Holding Corporation governance practices and is committed to clear disclosure Act, and subject to the provisions of The Crown of its governance practices in accordance with current best Corporation Act, 1993. The Crown Investments Corporation practice disclosure standards. of Saskatchewan (CIC), as the holding company for On June 30, 2005, the Canadian Securities Administrators Saskatchewan’s commercial Crown corporations, has (CSA) National Policy 58-201 on Corporate Governance authority to establish direction for SaskTel related to certain Guidelines, and National Instrument 58-101 on Governance matters set out in legislation. Disclosure Rules, came into effect. The CSA standards Through the Chair, who is an independent director, the Board supersede the Toronto Stock Exchange Corporate of Directors is accountable to the Minister Responsible for Governance Guidelines, which the Board used previously SaskTel. The Minister Responsible is a key communications to assess its practices. The Governance Committee has link among the Corporation, CIC, Cabinet, the Legislature and reviewed the Guidelines with a view of adapting the Board’s the public. governance practices to the guidelines, where effective and beneficial. Although SaskTel is not required to comply with BOARD APPOINTMENTS the CSA governance guidelines, the Corporation has used The Lieutenant Governor in Council appoints members of them to benchmark its corporate governance practices in the the Board, and designates the Chair and Vice Chair. Subject following section. to applicable legislation, directors are appointed for a fixed On October 15, 2014, the CSA announced amendments term and their appointments can be renewed at expiry. There to National Instrument 58-101 Disclosure of Corporate are twelve (12) members on the Board. Governance Practices effective December 31, 2014. The amendments implement a “comply or explain” disclosure KEY ACCOUNTABILITIES model regarding the representation of women on The Board of Directors is responsible for supervising the boards and in executive officer positions and the director management and affairs of the Corporation. While focusing selection process. The amendments do not introduce any on the strategic leadership of the Corporation, the Board mandatory quotas or targets. They are intended to increase delegates day-to-day operations to management and holds transparency regarding the representation of women on them accountable for the Corporation’s performance. boards and in senior management. There are no sanctions for non-compliance. The Board discharges its responsibilities directly, by delegation to management and through Committees of the Board, of which there are four: the Audit and Risk Committee, the Corporate Growth and Technology Committee, the Environment & Human Resources Committee, and the Governance Committee.

SASKTEL 2015/16 ANNUAL REPORT | 119 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

COMPOSITION OF THE BOARD NP 58-201, section 3.1 3.1 The board should have a The majority of directors on the SaskTel Board (11 out of 12) Yes majority of independent are independent. directors.

NI 58-101F1, sections 1(a) to (d) 1(a) Disclose the identity of directors Grant Kook, Chair: INDEPENDENT Substantial who are independent; – President and CEO, Westcap Mgt. Ltd. compliance (b) Disclose the identity of directors Terry Dennis: INDEPENDENT* who are not independent and – Entrepreneur – Business Owner the basis for that determination; Pat Friesen: INDEPENDENT (c) Disclose whether the majority of – Consultant - Success Business Consulting directors are independent; and Rachel Heidecker: INDEPENDENT (d) Disclose whether a director is a – ICT Manager, University of Saskatchewan director of any other issuer that Reg Howard: INDEPENDENT is a reporting issuer. –COO - Canadian Digital Network Jerri Hoback: INDEPENDENT – Accountant Randy Kachur: INDEPENDENT – Partner in Rusnak Balacko Kachur Law Firm Darrell Kennedy: INDEPENDENT** – Entrepreneur – Business Owner Pam Lothian: INDEPENDENT – Lawyer Gayle MacDonald: INDEPENDENT – Owner & Operator of G-Mac’s AgTeam Inc. Garry Reichert: NOT INDEPENDENT*** –Retired, former SaskTel employee John Ritchie: INDEPENDENT –Retired Glenys Sylvestre: INDEPENDENT – Associa te Dean (Undergraduate Programs) for the Paul J. Hill School of Business Administration at the University of Regina

The determination of independence is made by the Governance Committee and is based on an assessment of the requirements in Multilateral Instrument 52-110, Audit Committees.

* Mr. Dennis was a Board member until March 12, 2015 ** Mr. Kennedy was appointed to the Board May 27, 2015. *** Mr. Reichert is a retired senior manager of SaskTel, and, is currently a member of the SaskTel superannuation plan.

Section 1(d) does not apply to SaskTel as SaskTel does not have share capital, and is not an issuer.

120 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NP 58-201, section 3.2 3.2 The chair of the board should The Chair of the Board is an independent director who provides leadership Yes be an independent director who in Board organization, processes, effectiveness and renewal, serves as liaison is the effective leader of the between the Board and the shareholder and ensures Board agendas reflect board and who ensures that the an effective balance between the role of the Board and that of management. board’s agenda will enable it to successfully carry out its duties.

NI 58-101F1, sections 1(f) 1(f) Disclose whether the chair of Grant Kook is the Chair of the Board and he is an independent director. Yes the board is an independent The Chair reports to the Board and ultimately to the shareholder and is director; disclose the identity of responsible for presiding over meetings of the Board and ensuring that the the chair and describe the role Board discharges its fiduciary and legal responsibilities. The Chair’s primary of the chair duties include the following: • chairing meetings of the Board and ensuring meetings are properly convened and business is conducted legally • working with the CEO and the Corporate Secretary to set Board meeting schedules and establish agendas • monitoring meeting attendance and encouraging full participation by directors at meetings • communicating with directors between meetings • taking a lead role in assessing and addressing any concerns related to Board, committee or director performance • assisting directors to achieve full utilization of individual abilities • promoting an open and constructive working relationship between senior management and the Board • working with committee chairs to maintain effective communications and division of responsibilities • providing advice and counsel to the CEO and senior management • representing the shareholder’s interests and perspective to management, and representing management’s views to the shareholder • in conjunction with the CEO, developing productive relationships and representing the Corporation with the shareholder and key stakeholders

MEETINGS OF INDEPENDENT DIRECTORS NP 58-201, section 3.3 3.3 The independent directors As a Standing Agenda item, the Board holds an in camera session without Yes should hold regularly scheduled management present at each regular meeting of the Board. All directors meetings at which non- participate in the sessions, except where a director has a conflict with an independent directors and item under discussion. members of management are not present.

SASKTEL 2015/16 ANNUAL REPORT | 121 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NI 58-101F1, sections 1(e) 1(e) Disclose whether the There were twelve (12) Board meetings held in 2015, and during eleven Yes independent directors hold regular meetings, in camera sessions without management present but regularly scheduled meetings including all directors were held. at which members of management are not present; Board practices that facilitate open and candid discussion among and disclose the number of such independent judgment by directors include: meetings held in the previous • holding in camera sessions of no fixed duration where directors are 12 months; if such meetings encouraged to raise any issues of concern are not held, disclose what the • having an independent director as Chair of the Board board does to facilitate open • clearly delineating the division of responsibilities between Board and candid discussion among and management independent directors. • providing for the Board/directors to access external advice The Board is satisfied that its governance practices foster full and open discussion and debate and that it retains the independence of mind to make decisions in the best interests of the Corporation and the shareholder.

NI 58-101F1, sections 1(g) 1(g) Disclose the attendance The Board held twelve (12) meetings in 2015. The number of Board meetings Yes record of each director for attended by each director in 2015 is set out below. board meetings held in the most recently completed Director Meetings Attended* financial year. Grant Kook, Chair 12 (12)** Terry Dennis*** 1 (1) Pat Friesen 11 (12) Rachel Heidecker 12 (12) Jerri Hoback 12 (12) Reg Howard 9 (12) Randy Kachur 12 (12) Darrell Kennedy**** 7 (7) Pam Lothian 11 (12) Gayle MacDonald 11 (12) Garry Reichert 12 (12) John Ritchie 12 (12) Glenys Sylvestre 12 (12)

* For the purposes of this report, members who attended meetings in part were considered to be present. ** Figures in brackets represent the maximum number of meetings for the period in which the individual was a Board member. *** Mr. Dennis was a Board member until March 12, 2015. **** Mr. Kennedy was appointed to the Board May 27, 2015.

122 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

BOARD MANDATE NP 58-201, section 3.4 3.4 The board should adopt a The Board has written Terms of Reference that contain the majority of the Substantial written mandate which elements required by the Policy. The Terms of Reference outline the Board’s compliance explicitly acknowledges principal duties and responsibilities, including responsibility to function as responsibility for the stewards of the Corporation and to: stewardship of the corporation • provide leadership in setting the Corporation’s long-range strategic and responsibility for: direction and annually approve the Corporation’s overall strategic plan (a) to the extent possible, satisfying • participate in identifying the principal risks of the business in which the itself as to the integrity of the Corporation is engaged and oversee the implementation of appropriate CEO and executive and that systems to manage the risks they have created a culture • appoint the CEO, evaluate the performance of senior management and of integrity throughout the ensure effective succession planning processes organization; • adopt policies and processes to enable effective communication with (b) adopting a strategic planning the shareholder, stakeholders and the public process and approving at least • monitor the integrity of the Corporation’s internal control and annually a strategic plan which management information systems takes into account, among other things, the opportunities and The Board has approved Terms of Reference for Directors where the risks of the business; expectations and responsibilities of individual directors are delineated. (c) identification of the principal SaskTel regularly surveys internal and external stakeholders to obtain risks of the corporation’s feedback about Corporate activities. The Chair of the Board participates in a business and ensuring the forum established by CIC, which is composed of the chairs of all subsidiary implementation of appropriate Crown boards and senior CIC officials, where issues of mutual interest and systems to manage these risks; concern are shared. (d) succession planning, including appointing, training and Elements of the Policy not specifically identified in the Terms of Reference monitoring senior management; for the Board include (a) and (g). Respecting (a), the Board has established (e) adopting a communications practices that promote a culture of ethical business conduct (see discussion policy for the Corporation; under section 3.8 of NP 58-201). With respect to (g) the Board has delegated (f) the integrity of the corporation’s responsibility to the Governance Committee to oversee the Corporation’s internal control and approach to corporate governance. management information systems; and (g) developing the Corporation’s approach to corporate governance, including a set of principles and guidelines specific to the Corporation.

The written mandate should also address measures for receiving feedback from stakeholders (for example, a process for stakeholders to contact independent directors); and the expectations and responsibilities of directors, including basic duties to attend meetings and review materials in advance.

NI 58-101F1, section 2 2 Disclose the text of the board’s The Board’s principal responsibilities are described above. The text of the Yes written mandate. Board’s Terms of Reference can be obtained by contacting the Corporate Secretary to the Board.

SASKTEL 2015/16 ANNUAL REPORT | 123 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

POSITION DESCRIPTIONS NP 58-201, section 3.5 3.5 The board should: develop The Board has approved Terms of Reference for the Board, the Chair of Yes clear position descriptions for the Board, the Chair of each Committee, each Committee and individual the chair of the board and the directors and has adopted a Position Description for the CEO. chair of each board committee; together with the CEO, develop The CEO’s Position Description sets out the CEO’s primary accountabilities a position description for the and responsibilities. The Terms of Reference for the Board address CEO delineating management’s management duties, and a Final Authorization Policy, applicable to monetary responsibilities; develop or and non-monetary matters, sets out those matters that require Board approve corporate goals and approval and delegates other matters to management. objectives that the CEO is The Environment & Human Resources Committee annually recommends responsible to meet. performance indicators for the Corporation and personal goals for the CEO that are approved by the Board. The Board annually approves a business plan that includes Corporate objectives, priorities and performance indicators. The CEO is responsible to see that the Corporation achieves the business plan and to meet any other targets assigned by the Board.

NI 58-101F1, sections 3(a) and (b) 3(a) Disclose whether the board The Board has developed written position descriptions for the Chair of the Yes has developed written position Board, the Chair of each Committee and the CEO. descriptions for the chair of the board and the chair of each board committee and, if not, describe how the board delineates the role and responsibilities of each such position. (b) Disclose whether the board and CEO have developed a written position description for the CEO.

ORIENTATION & CONTINUING EDUCATION NP 58-201, sections 3.6 and 3.7 3.6 The board should ensure new The Corporation provides all members appointed to the Board with a Yes directors receive comprehensive comprehensive Directors’ Reference Manual, and new directors receive orientation and fully understand an orientation session delivered by management. The orientation session the role of the board and addresses key industry trends, critical business risks and challenges, the committees, the contribution strategic plan, organizational structure and responsibilities of senior staff. individual directors are expected New directors are able to meet informally with senior managers to learn to make and the nature and about the business. Prior to some regular Board meetings, outside experts in operation of the business. various aspects of the telecommunications industry are invited to speak to the 3.7 The board should provide Board and senior management. Management has also delivered educational continuing education sessions to directors to explain technical aspects of the business. opportunities for all directors to enhance their skills and Each year, CIC sponsors a comprehensive education program for directors abilities and ensure their of CIC subsidiary Crown boards. The program has focused on the key roles knowledge of the Corporation’s and responsibilities of boards, committees and directors, the skills directors business is current. need to effectively discharge their responsibilities and best practices and new developments in corporate governance. Directors can participate in external development opportunities related to their duties as directors where authorized by the Corporation or the Board.

124 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

CODE OF BUSINESS CONDUCT AND ETHICS NP 58-201, section 3.8 3.8 The board should adopt a written Board members must comply with the Directors’ Code of Conduct, which Yes code of business conduct and was developed by CIC and applies to the directors of all its subsidiary Crown ethics applicable to directors, boards. Officers and employees of the Corporation and its subsidiaries must officers and employees of comply with SaskTel’s Business Code of Conduct, which includes a whistle- the corporation designed to blowing policy. promote integrity and deter wrongdoing. The code Both Codes are designed to promote integrity and deter wrongdoing, should address: address the elements of the Policy as they apply to a Crown corporation and (a) conflicts of interest, including provide a mechanism to report illegal or unethical behavior. transactions and agreements where a director or officer has a material interest; (b) protection and proper use of corporate assets and opportunities; (c) confidentiality of corporate information; (d) fair dealing with the Corporation’s security holders, customers, suppliers, competitors and employees; (e) compliance with laws, rules and regulations; and (f) reporting of illegal or unethical behavior.

SASKTEL 2015/16 ANNUAL REPORT | 125 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NI 58-101F1, sections 5(a) 5(a) Disclose whether the board A copy of the Directors’ Code of Conduct can be obtained by contacting Yes has adopted a written code CIC. A copy of the Business Code of Conduct can be obtained by of ethical business conduct contacting SaskTel. for the directors, officers and employees of the corporation; Committees of the Board monitor compliance with the Directors’ Code how to obtain a copy of the and the Business Code. The Governance Committee monitors compliance Code; how the board monitors with Corporate donation and sponsorship policies and is responsible to compliance with the Code; and administer, monitor and enforce the Directors’ Code. The Chair of the reference any material change Committee reports to the Board at each regular meeting any such issues report in the most recent addressed by the Committee, and submits an annual report to the Board financial year relating to any regarding compliance with the Directors’ Code. conduct of a director or officer The Audit and Risk Committee monitors the financial performance of the that constitutes a departure Corporation and assists the Board to meet its responsibilities respecting form the Code. accounting and financial reporting, risk management, internal controls and accountability. The Committee interacts directly with the internal and external auditors, who report to the Committee concerning, among other things, any instances of illegal or improper treatment of Corporate assets. The Audit Committee receives quarterly risk management reports, including reports related to legal risks. The Chair of the Committee reports to the Board at each regular meeting any such issues addressed by the Committee, and all directors receive summaries of risk management reports.

The Environment & Human Resources Committee monitors compliance with environmental, health and safety and human resource programs, including compliance with the Business Code. The Committee receives reports from management that address, among other things, compliance with related policies, legislation and regulations. The Chair of the Committee reports any issues raised at the Committee level to the Board at each regular meeting of the Board.

SaskTel does not have share capital and is not an issuer. Therefore, no material change reports have been filed.

NP 58-201, section 3.9 3.9 The board should monitor The Board has delegated to its Committees the responsibility to monitor Yes compliance with the code compliance with the Codes of Conduct. The Committees report any issues and any waivers granted for dealt with pursuant to the Codes to the full Board. the benefit of directors and executive officers should be No waivers from either Code have been granted to any director or officer granted by the board or a in 2015. board committee. Any waivers for a material departure from the code for any directors or officers should disclose full details of the material change.

126 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NI 58-101F1, sections 5(b) 5(b) Describe steps the board takes Where a director has, or may be perceived to have, a personal interest in a Yes to ensure directors exercise transaction being considered by the Corporation, the director is responsible independent judgment in to declare any such interest at the meeting where the matter is considered considering transactions and and not to participate in discussions about or vote on the matter. agreements where a director or officer has a material interest. In 2005, the Board adopted a disclosure form to enable directors to declare their directorships on and material interests in businesses other than SaskTel, their knowledge of the business their associates have or may transact with SaskTel and any material contracts they may have entered into with SaskTel or its subsidiaries. The required information excludes the acquisition of services available to the general public. The completed form is provided to the Governance Committee, the Corporate Secretary and their advisors to assist them in proactively addressing potential conflict of interests.

Management monitors agenda items to identify any issues where a director may have a material interest and such items are not distributed to the director.

NI 58-101F1, sections 5(c) 5(c) Describe other steps the The Board encourages and promotes a culture of ethical business conduct Yes board takes to encourage and by following current best practices in corporate governance. These practices promote a culture of ethical are reinforced by open and honest discussion about business issues at business conduct. Board meetings and at informal gatherings between the Board and senior management.

The Board expects management to act ethically in its business dealings, in accordance with all applicable legislation, the Business Code of Conduct and any directives or policies of the Board or the shareholder. In 2005, the Business Code of Conduct was revised to incorporate a whistle-blowing mechanism to facilitate reporting by employees of issues of concern. Issues arising under the Business Code of Conduct are reported to and monitored by the Environment & Human Resources Committee and management reports to the Governance Committee respecting significant issues that have arisen pursuant to the whistle-blowing policy. Whistle-blowing reports may also be made directly to the Chair of the Governance Committee.

NOMINATION OF DIRECTORS NP 58-201, section 3.10 3.10 The board should appoint The Governance Committee functions as the nominating committee. All five Yes a nominating committee (5) members of the Governance Committee, including the Committee Chair, composed of entirely are independent directors. independent directors.

SASKTEL 2015/16 ANNUAL REPORT | 127 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NI 58-101F1, sections 6(a) and (b) 6(a) Describe the process by The Board, through the Governance Committee, reviews the composition Yes which the board identifies and skill sets of directors annually with a view to maintaining an appropriate new candidates for mix of expertise, experience and diversity on the Board to support the board nomination. strategic direction and operating needs of the Corporation. (b) Disclose whether the board has a nominating committee The Governance Committee is responsible for identifying the skill sets composed entirely of needed on the Board, developing and maintaining a skills profile that independent directors and, delineates the competencies of current directors and identifies any skill if not, describe the steps the gaps, and seeking and recommending to the Board nominees who board takes to encourage an have the required competencies to fill any identified gaps. In addition to objective nomination process. competencies and skills, the appointment practices encourage diversity in the composition of the Board. In seeking candidates, the Committee receives recommendations from the directors, senior management and the shareholder. Potential candidates are interviewed to determine their overall fit with the needs of the Board, any conflicts that would preclude their effective participation and whether they have the time to devote to board work. The Committee recommends a list of candidates for each vacant position to the Board, which in turn recommends a list of recommended candidates to the shareholder for approval. The shareholder has the legislative authority to make Board appointments.

The Committee believes that following best practices related to Board appointments, maintaining a skills matrix and recruiting candidates who possess the required combination of skills, background and diversity to add value to Corporate decision-making supports an objective nomination process.

NP 58-201, section 3.11 3.11 The nominating committee The Governance Committee has written Terms of Reference setting out Substantial should have a written charter its purpose and principal responsibilities, which address the Committee’s compliance establishing the committee’s responsibility to lead the process of recruiting and nominating candidates for purpose, responsibilities, appointment to the Board, as well as the other elements of the Policy except member qualifications, member member qualifications and the ability to delegate tasks. The Committee has appointment and removal, authority to engage outside advisors to assist it in performing its duties, subject structure and operations to the approval of the Board. The shareholder has the right to nominate (including any authority to candidates for appointment to the Board, and the candidates are assessed by delegate to individual directors the Governance Committee in the same way as other candidates. or subcommittees) and manner of reporting to the board. In addition, the nominating committee should be given authority to engage and compensate outside advisors necessary to permit it to carry out its work. Where a third party has a legal right to nominate directors, the selection and nomination of those directors need not involve the approval of an independent nominating committee.

128 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NI 58-101F1, sections 6(c) 6(c) If the board has a nominating The Governance Committee performs the functions of a nominating Yes committee, describe the committee, and its Terms of Reference describe the responsibilities, powers responsibilities, powers and and operation of the Committee. The Committee is appointed by the Board, operation of the committee. serves in an advisory capacity and makes recommendations to the Board within its area of responsibility. A copy of the Committee’s Terms of Reference can be obtained by contacting the Corporate Secretary to the Board.

NP 58-201, section 3.12 3.12 The board should adopt a The Board’s nomination process is described above, and it meets the Yes nomination process which guidelines of the Instrument. considers the competencies and skills of the board By legislation, the Board is comprised of a maximum of 12 directors. As the as a whole; assesses the Committee responsible for the Board’s approach to corporate governance, competencies and skills the Committee makes recommendations to promote timely and effective possessed by each existing decision-making. director; and considers the personality and other qualities of each director. The board should also consider the appropriate size of the board, with a view to effective decision-making, and should consider the advice and input of the nominating committee.

NP 58-201, section 3.13 3.13 The nominating committee The Governance Committee, serving as the nominating committee, is Yes should be responsible for responsible for leading the process to identify, recruit and recommend identifying individuals qualified qualified candidates for appointment to the Board. to become new board members and recommending to the board the new director nominees.

NP 58-201, section 3.14 3.14 In making its recommendations The process followed by the Governance Committee complies with that set Yes the nominating committee out in the Policy and is described above. should consider: the competencies and skills that the board considers necessary for the board as a whole to possess; the competencies and skills of existing directors; the competencies and skills of each nominee; and whether each new nominee can devote sufficient time and resources to board work.

SASKTEL 2015/16 ANNUAL REPORT | 129 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

COMPENSATION NP 58-201, section 3.15 3.15 The board should appoint a The Environment & Human Resources (EHR) Committee performs the Substantial compensation committee functions of a compensation committee. Four (4) of the five (5) members compliance composed entirely of of the EHR Committee, including the Committee Chair, are independent independent directors. directors. One (1) Committee member, as a retired employee of SaskTel, is not independent.

NI 58-101F1, sections 7(a) and (b) 7(a) Describe the process by The majority of members of the Environment & Human Resources Yes which the board determines Committee, which serves as the compensation committee, are compensation for the directors independent directors. and officers of the Corporation. (b) Disclose whether the board has CIC has the legislative authority to fix remuneration levels and set expense a compensation committee guidelines for directors. The Governance Committee has authority to composed entirely of recommend to the Board (and the Board to CIC) adjustments to directors’ independent directors and, compensation. The Committee receives quarterly reports respecting the if not, describe the steps remuneration received by members of the Board, and reports any anomalies the board takes to ensure to the Board. an objective process for Each director receives an annual retainer for acting as a Board member. determining such compensation. The remuneration levels established by CIC for members of the Board are set out below.

Director Remuneration Schedule Board Chair retainer $ 40,000.00 Board member retainer $ 25,000.00 Audit & Risk Committee Chair retainer $ 3,500.00 Other Committee Chair retainer $ 2,500.00 Committee member meeting fee $ 750.00

A copy of CIC’s remuneration and expense guidelines for directors can be obtained by contacting the Corporate Secretary to the Board.

CIC has established a framework for executive compensation, and the Board can approve compensation packages within that framework. The Board has delegated responsibility for addressing and making recommendations concerning management compensation issues to the Environment & Human Resources Committee.

The Environment & Human Resources Committee reviews and recommends the following to the Board: changes to the design of the Corporation’s overall compensation and benefits plans; management compensation packages that reflect industry standards; performance compensation programs; and annual Corporate indicators, including a sub-set used to determine performance compensation for senior management. In discharging this function, the Committee has the ability to retain external advisors, subject to approval by the Board.

130 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

NP 58-201, section 3.16 3.16 The compensation committee The Board has approved Terms of Reference for the EHR Committee, which Substantial should have a written charter addresses the Committee’s responsibilities with respect to compensation, compliance establishing the committee’s as well as the other elements of the Policy except member qualifications purpose, responsibilities, and the ability to delegate tasks. The Committee has authority to engage member qualifications, member outside advisors to assist it in performing its duties, subject to the approval appointment and removal, of the Board. structure, operations (including any authority to delegate to individual directors or subcommittees) and manner of reporting to the board. In addition, the compensation committee should be given authority to engage and compensate outside advisors necessary to permit it to carry out its work.

NI 58-101F1, sections 7(c) (c) If the board has a compensation The Environment & Human Resources Committee serves as the Yes committee, describe the compensation committee, and its Terms of Reference describe the responsibilities, powers and Committee’s responsibilities respecting compensation issues, as well as operation of the committee. the powers and operation of the Committee. The Committee is appointed by the Board, serves in an advisory capacity and makes recommendations to the Board within its area of responsibility. A copy of the Committee’s Terms of Reference can be obtained by contacting the Corporate Secretary to the Board.

NP 58-201, section 3.17 3.17 The compensation committee The Environment & Human Resources Committee annually recommends to Substantial should be responsible for: the Board the CEO’s performance targets, and leads the annual performance compliance reviewing and approving evaluation process for the CEO. The CEO’s performance is assessed against corporate goals and objectives the established Corporate objectives and the CEO’s individual targets. The relevant to CEO compensation, results of the CEO’s performance are approved by the full Board, and are evaluating the CEO’s used in determining compensation. performance in light of those corporate goals and objectives, Respecting non-CEO officer compensation, the Committee is responsible and determining the CEO’s for recommending to the Board management compensation packages, compensation level based performance compensation programs and annual performance targets. The on the evaluation; making Board reviews and approves the achievement of Corporate targets annually recommendations to the board and the extent to which the targets are achieved determines management’s respecting non-CEO officer eligibility for performance compensation. and director compensation, Executive compensation decisions are subject to any guidelines established incentive-compensation by CIC. As a Crown corporation, SaskTel does not have equity-based plans. plans and equity-based plans; and reviewing executive Director compensation is determined by CIC. compensation prior to public disclosure. Executive compensation information is available to the public through publication of Crown payee reports. The Committee does not review executive compensation reports prior to public disclosure.

SASKTEL 2015/16 ANNUAL REPORT | 131 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

OTHER BOARD COMMITTEES NI 58-101F1, section 8 8 If the board has standing In addition to the Audit and Risk, Governance, and Environment & Human Yes committees of the board, other Resources Committees, the Board also has a Corporate Growth & than audit, compensation Technology (CGT) Committee. and nominating committees, identify the committees and The CGT Committee: works with management to develop a growth describe their function. strategy and related policies; reviews and recommends investments and divestitures; monitors and reports to the Board respecting the performance of investments; and reviews and makes recommendations concerning the evolution of technology in the Corporation, long-term technology strategies and technology investments. A copy of the Committee’s Terms of Reference can be obtained by contacting the Corporate Secretary to the Board.

BOARD ASSESSMENTS NP 58-201, section 3.18 3.18 The board, its committees Board, Board Chair, Committee Chair and Committee evaluations as well Yes and each individual director as director peer assessments are performed annually on a 2 year cycle, with should be regularly assessed. comprehensive board and board chair evaluations being conducted one An assessment should consider: year, and director peer, committee chair and committee evaluations being with respect to the board or conducted the following year. The evaluations take into consideration the committees, its mandate or elements of the Policy. charter; with respect to an individual director, the applicable In 2015, Committee Chair and Committee evaluations as well as director peer position description(s), as well assessments were conducted. as the competencies and skills each individual director brings to the board.

NI 58-101F1, section 9 9 Disclose whether the board, The Governance Committee oversees the implementation of the above Yes its committees and individual evaluation processes. The evaluations are survey-based, using an instrument directors are regularly developed by CIC in consultation with an outside consultant and with Crown assessed with respect to board members. their effectiveness and contribution and, if yes, Board, Chair, Committee and director performance is measured against the describe the process used. duties and expectations set out in their respective Terms of Reference and the specific standards outlined in the evaluation instruments. The purpose of the evaluations is to identify areas where the Board, Committee, Chair or director is managing well and to highlight areas that may benefit by additional focus and attention.

Directors complete surveys to provide feedback in writing on the effectiveness and contribution of the Board, Committees, Chairs and individual directors. The Board Chair or a third party may follow up the written responses with interviews of directors to elicit additional concerns or suggestions for improvement.

The Governance Committee prepares reports outlining the evaluation results, which are submitted to the Board for review and approval. The Committee recommends follow-up action required as a result of recommendations made in the evaluation reports, and tracks implementation of any action items.

132 | CORPORATE GOVERNANCE STATEMENT CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

CSA National Policy 58-101 Disclosure of Corporate Governance Practices 10 Disclose whether or not The appointment and removal of directors is the prerogative of the Lieutenant No the issuer has adopted term Governor in Council pursuant to The Saskatchewan Telecommunications Act. limits for the directors on its Director appointments are not subject to term limits. board or other mechanisms of board renewal and, if so, include a description of those director term limits or other mechanisms of board renewal. If the issuer has not adopted director term limits or other mechanisms of board renewal, disclose why it has not done so.

11(a) Disclose whether the issuer CIC has a written “Board of Directors’ Appointment Policy.” While the policy Partial has adopted a written policy does not specifically refer to the identification and nomination of women Compliance relating to the identification Directors, it requires Crown Boards to include “diversity candidates.” The and nomination of women term “diversity candidates” is not defined but it is interpreted as including directors. If the issuer has not women, Aboriginal persons, and visible minorities. adopted such a policy, disclose why it has not done so.

(b) If an issuer has adopted a policy CIC maintains statistics regarding diversity of each Crown board, including Partial referred to in (a), disclose the progress made in the percentage of women serving on Crown boards. Compliance following in respect of the policy: Annually, CIC forwards information to the shareholder to be considered (i) a short summary of its when Board appointment decisions are made. The information includes the objectives and key provisions, skill sets required for the Board and diversity statistics. (ii) the measures taken to ensure that the policy has been As of December 31, 2014, the Board was composed of six (6) women out of effectively implemented, a total of twelve (12) members (50%). As of December 31, 2015, the Board (iii) annual and cumulative was composed of six (6) women out of a total of twelve (12) members (50%). progress by the issuer in achieving the objectives of the policy, and (iv) whether and, if so, how the board or its nominating committee measures the effectiveness of the policy.

12 Disclose whether and, if so, It is the responsibility of Executive Council to consider the level of Partial how the board or nominating representation of women on the Board. Compliance committee considers the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board. If the issuer does not consider the level of representation of women on the board in identifying and nominating candidates for election or re-election to the board, disclose the issuer’s reasons for not doing so.

SASKTEL 2015/16 ANNUAL REPORT | 133 CORPORATE GOVERNANCE STATEMENT (continued)

CSA Corporate Governance Policy, Does NP 58-201, and Disclosure Instrument, Comments and Discussion SaskTel align? NI 58-101F1 (Summary)

13 Disclose whether and, if so, how Executive Officer appointments are made by the CEO in consultation with Yes the issuer considers the level the Board. The CEO gives consideration to the level of representation of of representation of women women in Executive Officer positions, along with other relevant factors, in executive officer positions when making Executive Officer appointments. when making executive officer appointments. If the issuer does not consider the level of representation of women in executive officer positions when making executive officer appointments, disclose the issuer’s reasons for not doing so.

14(a) For purposes of this Item, Although the CIC policy requires Crown boards to include “diversity No a “target” means a number candidates”, the CIC policy does not adopt a specific target for or percentage, or a range representation of women on the Board. of numbers or percentages, adopted by the issuer of women on the issuer’s board or in executive officer positions of the issuer by a specific date. (b) Disclose whether the issuer has adopted a target regarding women on the issuer’s board. If the issuer has not adopted a target, disclose why it has not done so.

14(c) Disclose whether the issuer On August 13, 2015, SaskTel adopted a policy to provide a target regarding Yes has adopted a target regarding women in Executive Officer positions. women in executive officer positions of the issuer. If the The current target is to have at least 40% women in Executive positions issuer has not adopted a target, by 2020. disclose why it has not done so. (d) If the issuer has adopted a target referred to in either (b) or (c), disclose: (i) the target, and (ii) the annual and cumulative progress of the issuer in achieving the target.

15(a) Disclose the number and The Board is currently comprised of twelve (12) members, six (6) of whom Yes proportion (in percentage are women. (50%) terms) of directors on the issuer’s board who are women.

(b) Disclose the number and Currently, four (4) of the 12 (twelve) Executive Officers are women. Yes proportion (in percentage terms) of executive officers of the issuer, including all major subsidiaries of the issuer, who are women.

134 | CORPORATE GOVERNANCE STATEMENT Contact Us

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